The Dollar Generalization of Wal-Mart

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Unnamed
Scott McCall, Senior Vice President for toys, seasonal
merchandise, and celebrations gave a speech at PlayCon that was a unsettling
to those with whom I spoke, and I have spoken to a large number of
attendees.  Their concerns centered
around Scott’s emphasis on the importance of promoting products at prices under
$1.00.
  He gave considerable attention to
two examples, both of which sold in multiple millions of units but at very low
price points.
Dollar-General-Corp-DG

Now, let me be very clear.  Scott also spoke about the productivity loop,
crowd sourcing, being customer centric and being first to market with
innovation.  No one who discussed the
speech, however, mentioned any of that. 

In reviewing my notes after the fact, I came to the conclusion that Scott's speech was about more than low, low prices.  I think it was about a company that may be losing its more affluent shoppers and is repositioning itself to battle Dollar General and Family Dollar for the low income shopper

Consider these points made in the speech:

  • Scott noted that many Wal-Mart consumers are
    not able to shop online because they don’t have credit cards.
      They can only pay cash.  As a result, Wal-Mart is allowing them to
    purchase on line but pay in cash at a local store.  Those without credit cards are among the
    lowest income shoppers.  Why are they
    singled out for attention?
  • Wal-Mart is opening new small format stores
    that are running from 2,200 to 4,000 square feet
    in size.  That is actually smaller than Dollar General
    and Family Dollar store footprints which run to about 10,000 square feet.  Dollar General and Family Dollar focus on low
    income shoppers; shoppers in many cases without credit cards.
  • The importance of focusing on prices under a
    dollar is also reminiscent of Dollar General and Family Dollar, not to mention
    Dollar Tree
    Again, it appears that they
    are going after the low income shopper.

So, here is what I think: 

Wal-Mart is losing the war for the more affluent customer
to online completion (think Amazon).  As
a result, they are left with bricks and mortar customers who use cash and are
attracted to low retail price


points.  As
a result of this, foot traffic is headed down resulting in the need for smaller
footprint stores and lower overhead.

I don’t fault Wal-Mart for its strategy in light of the
times.  It does, however, cause concern
that the company is feeling the impact of the Internet and as a result is becoming
increasingly dependent upon a smaller, less affluent customer base. 

By opening smaller stores and pushing lower price points,
I believe that Wal-Mart is challenging Family Dollar and Dollar General.  Now, that is going to be quite a fight.

 

 

 

 

2 thoughts

  1. Scott McCall made the observation that it is hardly surprising if the US toy market value had declined in recent years, because the average price paid in Walmart for a toy had increased. Firstly the increase he cited was lower than the general increase in the consumer prices index. Secondly the average price paid for a toy can fluctuate for all kinds of reasons, such as having a hot toy which is above or below the average price. The relationship he mentioned is circumstantial with no evidence being adduced that it is causal. Not very impressive. It made me think he had a Walmart agenda, to provide support to his desire to lower prices.
    His celebration of the $40million sales of a 97cent item in a dump bin was superficial. Maybe he had more information but didn’t share it with us. The only way he could tell if the sales were incremental , or conversely might even cannibalized greater sales which might have taken place if the dump bin had not been there, is if a study of consumer behaviour around that purchase were to have been conducted.

  2. Richard, one important element is Walmart’s part in perpetuating this cycle. Walmart annually pulls in hundreds of millions of dollars from state and local government economic development subsidies. These subsidies help Walmart maintain low low prices. Walmart employees require enrollment in various taxpayer funded healthcare programs because these employees are not provided appropriate benefits and compensation.
    Walmart’s low, low pricing structure perpetuates a cycle that presents a no-win scenario for everyone involved (save Walmart itself). Dollar stores function a bit differently. These stores rarely get the same products at the same time as the big discounters like Walmart. If a product’s life cycle starts at a high price and ends at dollar discount chains years later, we can guess that generated lifetime sales have been maximized, at least to a degree. Instead, as Storch from TRU said, everything is dumped discount at day one.

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