Strategy

Wal-Mart: Counter intuitive

How Wal-Mart Canada plans to thrive in tough times.

Wal-Mart Canada wants you to get emotional. This month, the Mississauga, Ont.–based company, whose parent is the world’s largest retailer, headquartered in Bentonville, Ark., will unveil a TV campaign designed to appeal to Canadians’ increasingly tight pocketbooks and their hearts. Created by the Toronto office of New York–based advertising agency JWT, the 30-second commercials begin with the question, What will you do with your Wal-Mart savings? They then show touching examples, such as a father building a doghouse for his family’s new puppy, and end with the company’s new friendlier-looking logo and its revamped tag line, “Save money. Live better.”

Warm and fuzzy ads, of course, have been around for ages. But Wal-Mart Canada, which accounts for about 20% of Wal-Mart’s international sales, hasn’t really used them until now. “It’s a monster change for us, but an appropriate one,” says Jeff Lobb, vice-president of marketing. He points out the retailer isn’t straying from its longtime message about unbeatable prices; it’s simply drawing the connection between shopping at its stores and enjoying a nicer lifestyle. To ensure people don’t forget it’s the place to buy stuff cheap, Wal-Mart Canada will continue to run basic commercials that show products with their discount prices. Still, Lobb’s vision for the brand seems somewhat vague. “We’re trying to make Wal-Mart Canada into Canada’s Wal-Mart,” he says by way of explanation.

Regardless of whether the company’s new positioning is clear, Alan Middleton, a marketing professor with the Schulich School of Business, says there are advantages to the retailer’s change in branding. Moving from a sole focus on price helps Wal-Mart Canada fight the perception its inexpensive goods come at the cost of quality or customer service, he says. Middleton adds the shift also counters the view that “Wal-Mart has good prices by screwing suppliers, small towns and competitors.” Still, he questions the timing of the move. Wal-Mart’s “Everyday low prices” is one of the best-known slogans in North America, Middleton says, and that’s the perfect positioning when consumers’ minds are on their budgets. The retailer’s reputation for rock-bottom prices is hardly untouchable, especially as competitors such as Loblaw’s tout savings, too. “There’s a perception that Wal-Mart’s prices are cheaper than everywhere else, but that’s not correct,” says Richard Talbot, a retail consultant in Markham, Ont. “Wal-Mart takes products that people are likely to remember the prices of, whether it’s toothpaste, shampoo or razor blades, and makes sure those items are priced lower than in surrounding stores.”

Is Wal-Mart taking an unnecessary risk with its brand?

The “Save money, live better” campaign, which launched south of the border last year, makes more sense in the light of a significant business opportunity. Spearheaded by company president and CEO David Cheesewright, Wal-Mart Canada’s marketing team delved into the psyche of Canadian shoppers during the past year. Like their colleagues in the U.S., they have identified three key segments: the “price-value shopper,” who sees Wal-Mart as a necessity because of low income; the “brand aspirationals,” who want specific brands at discount prices; and the “price-sensitive affluents,” wealthier and slightly older folks who consider getting a deal as part of being smart. Together, these groups make up 64% of the population.

Price-value shoppers are Wal-Mart Canada’s core customers, and they spend 28% of their shopping dollars at the retailer. Brand aspirationals and price-sensitive affluents spend only 18% at the discount chain. Another key insight was that the current tough economic conditions have led these two segments to a greater appreciation that saving money translates to a better lifestyle. “These groups are good targets in a recession, because they’re going to have less money in their pockets and will change their shopping habits,” Cheesewright says. He adds: “A lot of people will say. ‘I used to buy my clothes at market retailer X. I want to save money now. If I can save 50 bucks at Wal-Mart, then that’s great.'”

The company’s rapid expansion in Canada, to more than 300 locations from 122 retrofitted Woolco stores in 1994, helps attract the brand aspirationals and price-sensitive affluents. The convenience of having a Wal-Mart close by goes a long way toward diminishing the stigma of shopping there, retail consultant Talbot explains. “People are happy to shop for some items at Wal-Mart — for example, groceries — and then go to Toronto’s Bloor Street to buy high-end goods on the same shopping trip,” he says.

Convenience, and advertising that talks to non-core customers, however, won’t be enough to get those shoppers to significantly increase their spending. Cheesewright concedes stores need to do a lot of work on their assortment to include, say, a high-end Weber grill in its collection of barbecues forthe brand aspirational. And selling products to customers outside its price-value shoppers group hasn’t always gone well. In the U.S., the chain stocked trendy clothing, such as skinny jeans, that didn’t sell and contributed to a 0.1% drop in same-store sales in November 2006, which was the worst performance on that key measure in more than a decade.

Wal-Mart’s retail buyers in Canada, though, are among the savviest in the global organization. In fact, Canada boasts a veteran toy buyer who is the corporation’s authority on the category and was the first person ever to place an order for mega-selling Cabbage Patch Kids dolls. Combine that expertise with a much better understanding of the consumer, and Wal-Mart Canada may avoid some of the mistakes made in the States.

Appealing to the price-sensitive affluents, though, could be tricky. They value the store experience as much as the low cost. Marketing vice-president Lobb says his team still needs to peg what that looks like. In any case, they need to pay attention to details such as the opening price point of a category and the use of private label, or risk alienating core shoppers. “We don’t want to send a signal we’re changing what Wal-Mart is,” he says.

Getting non-core customers also means going where they live, which includes urban centres. Cheesewright says he can’t build 200,000-square-foot supercentres downtown, but compact 100,000-square-foot formats, which have appeared in Burlington, Ont., and West Vancouver, closely resemble the assortment of much larger stores. Cheesewright’s past experience as chief operating officer of Wal-Mart-owned Asda — the U.K.’s second-largest grocery chain — will be valuable in this area, as an average Asda store generates more sales than a Canadian Wal-Mart but with just one-third of the space. He also has a supply-chain specialist from the U.K. working at the Mississauga office.

If Wal-Mart Canada can entice non-core customers, its growth rate could increase even faster. The retailer is opening or expanding about 30 stores per year. It’s grabbing market share in the fresh-food category with its supercentre format, which launched three years ago. In fact, groceries have become the No. 1 request among customers at its existing stores. It’s also had industry-leading growth in overall sales during the past decade. Since the financial crisis hit last year, the chain has grabbed market share in practically every category.

Cheesewright has a vision for the Canadian company: five years from now fresh food will be in nearly all its stores, products will be tailored to each store’s community, the retailer will become a stronger player in growing areas such as electronics — and all at prices that are unbeatable. If Wal-Mart Canada can pull this off, it would accomplish a lofty goal set by ad execs at JWT. As Susan Kim-Kirkland, a vice-president of account services, puts it, “We want to go from Canadians liking Wal-Mart to loving it.”