BENTONVILLE, Ark. — Customer segmentation at Wal-Mart Stores is a work in progress.
While the nation's leading retailer built its sales base on its appeal to a low-price-oriented segment, it says it is on track to remerchandise more than 3,200 discount stores and supercenters to broaden that appeal by the end of 2008 by developing a “store of the community” focus to reflect the diverse needs and wants of consumers.
As of last fall, Wal-Mart was barely 1% into its customization process, with only about 30 “stores of the community” at one stage or another of redefining the assortment to meet customer needs, company officials indicated.
Wal-Mart is segmenting customers by ethnicity, income levels and geography, with potential shoppers falling into six groups: Hispanics, African Americans, Baby Boomers/Empty Nesters, affluent, suburban and rural.
Rather than trying to reach consumers who do not already shop at Wal-Mart — once reportedly a primary goal — the company is focusing its efforts on meeting the needs of people who already shop at the stores.
Toward that end, John Fleming, the chain's new chief merchandising officer, said Wal-Mart has segmented its customer base into three groupings based on how and why they make their buying decisions: brand aspirationals (people with low incomes interested in brand-name products); price-sensitive affluents (wealthier shoppers who like to shop for deals); and value-price shoppers (those who like low prices and cannot afford much more).
Eduardo Castro-Wright, president and chief executive officer of Wal-Mart's U.S. business, said segmentation efforts at test stores have resulted in improved results, including a boost to gross margin of 156 basis points at a Hispanic-oriented supercenter in Houston, where sales per square foot have grown 7.6% above the rest of the company's supercenters there and pretax profits have shown triple-digit increases; and 250 basis points at an African American-oriented discount store in Evergreen Park, Ill., near Chicago.
“You will see a lot of emphasis on margin enhancement,” he pointed out, “because as we become more relevant to each customer segment, the velocity of inventory turnover will increase, the merchandise will be fresher and there will be reduced markdowns, so gross margins will improve.”
EDITING THE ASSORTMENT
The company's three-year remerchandising effort is more a matter of editing a store's existing assortment than adding a lot of new items, Castro-Wright said, and is based on research the company conducted in 2006 to determine what mattered most to its customers.
“As we enter year two, our focus will extend to merchandise assortment and marketing execution of the findings we identified in our customer research,” Castro-Wright said. “Once we define a segment and what drives its purchase behavior, we have to define the assortment and the strategy for merchandising it.''
John Menzer, vice chairman, said Wal-Mart is using the research to remodel stores department by department. “We are reallocating space and trying to be more relevant based on customer insights,” he said. “We have listened to our customers, and we are refocusing our remodels on areas of the store that matter most to them.”
In grocery, that meant plans to boost the assortment of organics in areas where the company saw the highest consumer opportunities, including milk, private-label infant formula and pet foods — an ambition that may have been scaled back at some locations in the last few months, published reports indicate.
Another change involved a move of pharmacies closer to the food sections.
The company is also focusing on plans to differentiate its Neighborhood Market locations, using knowledge gleaned from operating stores in Mexico and Central America to deliver better initiatives in Hispanic communities, and from Japan to improve its seafood offerings, Castro-Wright said.
Differentiating Neighborhood Markets “means we could operate those stores in high-income neighborhoods,” according to Lee Scott, Wal-Mart's CEO.
However, while Neighborhood Markets are Wal-Mart's format of the future, that future is unlikely to come until the company has saturated the market with supercenters, Scott noted, “[though] we don't see ourselves reaching market saturation” over the next three years, he said.