Wednesday, April 14, 2010

Wal-Mart’s (Latest) Identity Crisis

Wal-Mart is a study in contrasts.

Its low prices are awesome. Its shopping experience, not so much. Its positioning is terrific, but its advertising leaves something to be desired. It serves well its paycheck-to-paycheck customers, but panders too much to the politically correct.

Wal-Mart has a rock-solid heritage in founder Sam Walton, but too often loses sight of what makes it special.  The latest example came in the form of an announcement last week that the company was cutting prices on some 10,000 items. With any other retailer that would be cause for celebration, but with Wal-Mart it’s just disappointing.

Wal-Mart = Low Prices. Period. Not margins. Not promotions. Not rollbacks. If prices are always as low as possible—as Wal-Mart has worked so hard for so long to convince us of—how then can they be cut, especially across such a wide swath of products? In one of its “rollback” TV commercials, “Mike the truck driver” says, “just by driving smarter routes and making sure our trailers are packed fuller, we save millions of dollars on fuel costs.” Does the world’s leanest company expect us to believe that it just figured that one out?

In an April 9 story about the price cuts, the Wall Street Journal’s Miguel Bustillo and Timothy W. Martin cited a J.P. Morgan analyst whose regular Wal-Mart price survey resulted in a bill 2.3% higher than it was in the previous month. That’s a pretty big jump. While it’s any company’s prerogative to raise or lower its prices, Bustillo and Martin wondered  “…whether Wal-Mart is committed to pushing the envelope on pricing as it did in the days of its late founder, Sam Walton, or is merely hyping promotions as it pursues a  more margin-driven approach…”.

Judging from what Wal-Mart CMO Stephen Quinn said of the cuts, it appears to be the latter: “We felt we needed to increase the intensity and excitement with our customer, especially the feeling that Wal-Mart has great deals.”

Yuck. “Great deals,” “hyping promotions” and “a more margin driven approach” are what you’d expect from Kroger or Macy’s, not Wal-Mart.  I don’t know about you, but I expect the “great deals” at Wal-Mart to be baked into its everyday low prices, not used as underpinnings of a grand promotion.

Like many companies trying to cope with slowing sales, Wal-Mart can be its own worst enemy. Instead of fiddling with margins and flirting with upscale customers, Wal-Mart should aggressively tout its all-the-time, every-day, low-low-lowest prices. Always. It’s the one company with the credibility to do so, and promotions like this threaten that very crediblity. Wal-Mart needs its customers to believe that it always—always—gives them the lowest prices it can.

That’s what made Wal-Mart Wal-Mart. It shouldn’t mess with success.

Monday, November 30, 2009

Some Decisions are Forever

Earlier this year I commented on a decision by Panasonic to rein in R&D; investment in flat-panel televisions and instead expand its reach into the entry-level market (see “Is Panasonic Kissing Its Future Goodbye?”).

The company appeared to be eyeing significant market share opportunities offered up by the 2009 conversion to digital TV in the U.S. It was a bold move, because while it’s easy to cash in your brand equity and go down-market, once the decision is made it’s nearly impossible to reverse course.

Last month another famous brand made that fateful choice. Liz Claiborne, Inc. agreed to license its namesake brand exclusively to J.C. Penney, ending decades-long relationships with department stores like Macy’s, Dillard’s and Bon-Ton. The Claiborne brand has long been in decline, and a Macy’s spokesperson said the retailer could no longer justify expanding the line because of customer confusion between it and the “Liz & Co.” sub-brand that was being sold exclusively at–you guessed it–J.C. Penney.

The Claiborne brain trust may have created their own problem by overextending the brand, a common manifestation of the loss of focus that afflicts many stalled companies. That said, this new decision may work out. It’s not the first time J.C. Penney has partnered with respected, high-profile designers (Polo Ralph Lauren and Nicole Miller, to name two), and Penney is doing better than many of its rivals in this tough economy.

As with Panasonic’s decision, however, this one will be interesting to watch, and will serve as yet another object lesson for any company struggling with stalled growth. Going downscale–where all the value-conscious buyers are these days–can be extremely tempting. But if you do it, make sure you’re extremely comfortable with your decision. There’s no turning back.

Friday, May 15, 2009

Playing with Fire at Macy’s

Yesterday I had the pleasure of visiting with Tom Keene and Ken Prewitt on Bloomberg radio about the principles in When Growth Stalls (click here to listen). During the course of the conversation, Ken brought up the loss of focus principle in the context of department stores.

My mind immediately flashed on an article that appeared Wednesday in the Wall Street Journal about how Macy’s is “picking at the bones of fallen competitors” by stocking its formal rivals’ most popular products. It’s a profitable yet potentially risky strategy.

For example, the company is expanding its selection of bridal products in the wake of New York furniture and jewelry retailer Fortunoff’s bankruptcy (and considering offering patio furniture, which Fortunoff moved by the truckload). It’s also stocking additional cosmetics in its West Coast locations following the demise of Mervyn’s, and adding premium chocolate and more “moderately priced apparel” in Pittsburgh based on products offered by retailers that have bitten the dust there. All of this in addition to the company’s “My Macy’s” initiative, which already allows local stores to customize up to 20% of their inventory to suit local tastes.

Hmmm. I smell danger. Stepping into the breach of a dynamic competitive marketplace in order to gain market share is smart. Stocking merchandise just because you can sell it is playing with “loss of focus fire,” something with which department stores naturally struggle. If Macy’s isn’t careful, its iconic brand could get burned.