Monday, October 17, 2005

Wal-Mart and the concept of upscale shopping

My friend Kevin Brancato recently wrote the following:

Wal-Mart will have the challenge of keeping its low-price inventory, but also must provide a more upscale experience. Wal-Mart will stay (relative to its competitors) near the bottom in terms of service and shopping experience, but the expectations of the bargain shopper will have risen, so that people will expect greater service and comfort along with prices.

This point is very interesting to me. I have to think about that one. If Wal-Mart ever aims for a more upscale demographic category, or wishes to broaden out of its main base more into that category, I would assume they would have to increase the capex per store where they want to do this. If anyone hears of a store in the system (Supercenter or Discount) where this is happening, please let me know. I will go visit the store to see what's happening there.

Mainly I would be interested in an existing store with a known lower end demographic customer base that Wal-Mart is trying to move up the demographic chain. I would in fact be astounded to see that. I would secondarily be interested in a store that is new that was clearly built with greater than average capex. Before pointing it out, please make sure that the upscale nature of the store is clearly evident.

Also, any articles or press releases about any moves by Wal-Mart to increase its capex per store (above the rate of CPI for example) would be interesting to me.

Regarding consumer preferences for a more upscale shopping experience, I don't know. We have the number one Supercenter in the region at 2727 Dunvale Road in Houston ..#2066. (It was running around #2 or #3 before Katrina and went to #1 after so many people moved here from Louisiana.) You go in there and it's basically a mob scene most of the time. No one is going there for an upscale shopping experience and no one really cares about an upscale shopping experience. They just want their stuff and they want lots of it and they want it cheap.

We also have what I believe is the number one Discount Store in the region. Wal-Mart Store #2718 at 9555 South Post Oak Road. I'm told they do almost as much business in there as a Supercenter. It's also a zoo most of the time and again no one is thinking about a more upscale shopping experience.

Regarding the upscale shopping experience idea.. I can't help but think about Wal-Mart's primary business model: sell it cheaper than the next guy, and do it by keeping your costs lower than the next guy.

Rose Blumkin (the great Mrs. B) who started the Nebraska Furniture Mart in Omaha used to say something along the lines of "If you have the lowest prices, customers will find you at the bottom of a lake."

I think the low cost, low price idea is the primary driver, the primary concept, behind all of Wal-Mart's activities. As long as customers are pounding their way through the door, if it costs less to sell at the bottom of a lake, why spend the money to sell in a nicer looking store?


Anonymous Anonymous said...

One of my coworkers was from China. I asked him why so much of the stuff they made was low quality and cheap.

His answer the same as yours, if it costs less to sell at the bottom, why spend money to sell at the top when you have huge revenue at the bottom.

October 19, 2005 6:46 PM  
Anonymous Anonymous said...

I think walmart is moving a bit more upscale. Look at the new stores they are building and stores that are being remodeled. I work at a store that was recently relocated from a discount store to a supercenter. Prior to the 'relo' we were remodeled. When they remodeled our store (about 2.5 years ago) they only did some minor touch up changes (new floors, new paint inside) but no major changes, no exterior work, etc. Now when they remodel stores they totally repaint the exterior of the building, moving away from the blue/grey buildings to more natural looking brown/blue/green buildings. Also, they are doing major construction inside the buildings. And this is at all remodels, not just certain stores. Also, at new stores, including the new store I work at, they are building them more 'fancy', with a brown concrete floor, brown painted walls, everything is more modern and 'upscale' looking. And, they don't really have to increase their cap-ex greatly, just marginally, as they are doing it just by changing the color of the paint they use, or the color of the checkstands, etc.

October 21, 2005 8:19 PM  
Blogger Bobby said...

Thank you very much for the comment. It was very insightful. It sounds like Wal-Mart is making strides in presenting a more modern and upscale shopping experience without having to spend a lot of money doing it. My gut feeling is that that should work out fine for them.

October 23, 2005 3:41 PM  
Anonymous Anonymous said...

Your comments re: the Omaha Furniture Mart are very amusing and ring true.

Have you any more evidence that per store capex are or will ramp-up following your attendance or hearing of the Wal*mart analysts meeting on October 25/26?

October 26, 2005 6:05 AM  
Blogger Bobby said...

I did not attend the Wal-Mart analysts meeting, but I will be listening to the archived audio of the event which is available online.

I have about 8 hours of audio to go through before I'll now if they mentioned any unusual increase in per store capex.

Just from the two hours I've already listened to, I must say I'm quite surprised by the huge increase in retailing square footage planned for FY 2007. They are planning on adding 60 million square feet in FY 2007. I had them in my model at closer to 50.

I'll write a full report on the analysts/ meeting soon.

October 29, 2005 11:09 AM  
Anonymous KK said...

How do you know that the number one discount store in the region is #2718? Where would one find such info?

February 15, 2006 1:53 PM  
Blogger Bobby said...

The only reason I could make that estimate is simply from talking to Wal-Mart associates in my region.

Wal-Mart is quite open with the associates about how profitable any given store is or how much business a store does. Sometimes associates will tell me about it.

February 20, 2006 1:06 PM  

Great stuff

March 16, 2013 5:58 PM  

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