Johannesburg, South Africa. Wal-Mart Losing Its Low Income Core Customer
There have been a number of recent stories about how consumers are voting with their feet against Wal-Mart, charging that the giant retailer is no longer the cheapest game in town.
For example, several months ago, the Motley Fool reported that Wal-Mart "was actually raising some of its prices." The Fool reported that Wal-Mart's strategy to drastically lower its prices in the fall had backfired, because shoppers grabbed up the bargains, but bought nothing else. In response, Wal-Mart boosted its prices on food items.
Last September, a loyal Wal-Mart Mom in Houston, Texas wrote a blog in which she noticed "how overpriced your produce was. Not only that, it was poor quality... I started finding lower prices by deal matching Target and CVS... I found store brands that had better ingredients than [Wal-Mart's] Great Value line... And when I found out that the store across the street had canned corn for half the price? I didn't look back.'
Now a business publication in South Africa says it has obtained an internal Wal-Mart document, entitled "Wal-Mart Core Customer," which says that lower income shoppers are leaving the retailer in noticeable numbers, because it is no longer the price leader.
According to Business Day, "Wal-Mart is battling perceptions in its home US market that it is no longer the cheapest retailer." The publication says that Wal-Mart makes 75% of its sales in the United States, but "has lost customers among the lower-income earners in its core demographic -- 68% of sales come from those with household incomes under $70,000. Its reputation has been growing that it cannot be relied on to always offer the cheapest goods."
The source of this information is "an internal document" that fell into Business Day's possession -- presumably not from Wikileaks.
According to Business Day, Wal-Mart's only gains surprisingly came from shoppers in the $75,000 a year level or higher. The largest fall was in the $25,000 to $49,000 income level, which fell from 37% of American shoppers in May, 2009, to 28% of shoppers in May of 2010.
The internal memo, which was written in September of 2010, admits: "We've lost relevance with the lower-income families," noting that poor families "struggle to make ends meet and see the world differently than the customer we've been focused on."
Business Day suggests that Wal-Mart is losing shoppers because Americans are focused on getting the cheapest price, whereas shoppers in South Africa are more loyal to their stores. "In the US, there's a lot of competition in that discounter market -- Wal-Mart, Target, a whole bunch," explained a spokesman for the South African Commercial Catering and Allied Workers Union. "It's not like Wal-Mart are the only one offering cheap everyday low prices, whereas in South Africa we don't understand the idea of discounters. There's a degree of loyalty in South Africa not apparent in the US, because of that huge competition."
In the internal document, Wal-Mart says its core U.S. customer is a young working family with an average household income of $20,000-$50,000. They are mixed-race, they pay with cash, use discount vouchers, and visit Wal-Mart more than once a week.
According to Wal-Mart, this core customer shopped less at Wal-Mart over the past year, falling slightly from 22% to 21%.
What you can do: In January of 2008, Wal-Mart strategist Leslie Dach described Wal-Mart's core customer as a woman who "shops at Wal-Mart because it's where she gets the best value on school clothes for the kids, or supplies for the house or groceries for dinner." That core customer has been contributing to Wal-Mart's slide in same stores sales.
A spokesman for Wal-Mart told Business Day that the company was addressing the issue of being the low price leader. "Our marketing efforts will be focused on bringing to life how our customers can rely on Wal-Mart to save them money so they can live better. Our holiday message is focused on basket savings."
Fortunately, wealthy Americans seem to have discovered Wal-Mart too. The Wal-Mart memo says customers earning between $75,000 and $99,000, have risen from 9% to 13% of Wal-Mart shoppers. And the upper crust Wal-Mart shopper, in the $100,000 + income bracket, have risen from 10% to 19%. That means households over $75,000 now make up almost one-third of Wal-Mart's shoppers.
Just in time to spend their new federal tax break at Wal-Mart.
Readers are urged to call Wal-Mart's Media Coordinator Greg Rossiter at 1-800-331-0085 after hours, and leave the following message: "Dear Mr. Rossiter, Given the increasing importance of well-heeled shoppers at Wal-Mart making $75,000 or more (now 32% of sales), I encourage Wal-Mart to pitch to the media more stories about how an extension of the Bush-era tax cuts will stimulate rich people to spend more of their money at Wal-Mart.
It would make a great human interest story to have the Walton Family explain how they plan to spend their $32.7 million in lower estate taxes on goods at Wal-Mart. That's more than three times the amount of money that Congress wants to give to the 39.5 million elders on Social Security based on $250 per person. If the Walton's would spend their estate tax windfall at Wal-Mart, it would really do wonders for the nation."