Can Walmart Make Its Up-Market Move Work?

2018 Walmart Associate and Shareholders Meeting

Walmart is undergoing a massive corporate makeover. With $500.3 billion in total revenues worldwide in 2018, 11,700 stores and 2.3 million associates, it is a long-term project that will take place on many fronts. Change and corporate transformation in its business and culture were CEO Doug McMillon’s primary theme in remarks at the June 1 Walmart Associate and Shareholders Meeting.

With the U.S. Walmart segment accounting for 64% of total sales, or $318.5 billion alone, including nearly 5,000 stores, as well as its e-commerce business, this is where the stakes are highest and its eventual transformation will be measured. By comparison no single corporate unit accounts for even as much as 1% of net sales.

At this past January’s National Retail Federation Big Show, where McMillon was honored as The Visionary at the NRF Foundation Gala, he told the story of the company’s awakening to the need for change. “At some point, Walmart became big and societal expectations changed. And we missed the memo.”

But it wasn’t just societal changes that Walmart missed, but demographic shifts as well. Its core customer base of lower-to-middle income consumers are losing ground to higher-income consumers with greater spending power and much higher expectations of what they want when doing business with a company like Walmart.

Driven by necessity

From 2012 to 2016 the number of U.S. households grew by a mere 3.1%, from 122.4 to 126.2 million, but most of that growth as been in the higher-income $100k and over segment, according to the latest census.

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U.S. Households by income 2012-2016

While the number of lower-income under $50k households declined by nearly 6% over the past four years and the middle-income households only advanced 2.4%, those at the top rose 22%.

Walmart’s average customer has an income of only $56,482, according to Kanter Retail, so its core customer base is shrinking. It simply has no choice but to figure out ways to entice the more affluent customers whose income has outgrown Walmart’s basic marketing message of “Everyday Low Prices (EDLP).” By necessity it has to align with affluent consumers.

Upmarket move from mass to class

In describing the new Walmart, McMillon continually refers to it as a “technology company.” In its first moves upmarket, tech has been its the primary vehicle. It got a jumpstart in expanding its e-commerce platform with the acquisition of Jet.com in 2016 which brought over tech-entrepreneur Marc Lore to head up Walmart’s digital division. With hayneedle.com, shoes.com, moosejaw.com, modcloth.com, bonobos.com, the new bedding site allswell.com added in with jet.com and walmart.com, e-commerce accounts for $11.8 billion in sales, a mere drop in the bucket.

Just added to Walmart’s e-commerce platform is a new premium brand shop under partnership with Lord & Taylor. This greatly expands Walmart’s brand width to include 125 luxury-leaning fashion brands. Denise Incandela heads up Walmart’s digital fashion group and she comes with impressive luxury-fashion credentials after serving as president global digital at Ralph Lauren and evp and chief marketing officer at Saks Fifth Avenue.

Selections on the walmart.com premium brands shop are in keeping with Walmart’s more affordable prices and far less extensive than found on the lordandtaylor.com site. It is, however, an interesting partnership, but whether it will move the needle for either company is a question.

Lord and Taylor as a brand sits uncomfortably in the lagging department store sector and somewhere in the middle ground between Macy’s at mass and Nordstrom, Saks, Bloomingdales, Neiman Marcus in class. And if we’ve learned nothing else in the current retail market, being in the middle is the last place any brand wants to be.

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