Thursday, March 12, 2015

Insights About Walmart's Strategy and How It Impacts Its Categories

A great article as I like them. Factual, well documented, which gives us a lot of food for thoughts. I use more and more the retail section of Forbes to write some of my blog posts as I find them very well written.

In this article, Forbes explain how Walmart's category strategy has evolved over times, to shift from general merchandises to grocery business.

Here is a chart below that explains well this fact.

This strategy allowed Walmart to secure more frequent visit, and added sales. But what I am questionning myself is that grocery business usually provides less margin rates than other products. Hence, the rise of grocery shopping may have an impact on the overal margins of Walmart. Nevertheless, another key change may have been that with the rise of grocery, Walmart was also able to improve its operational efficiency and costs. It would be interesting to see how this move have impacted the profitability of the company.

What is interesting in the article, is how this fact is related to clothing apparel chain Kohl's data. Indeed, as you can see in this chart, the growth of the penetration rate of Kohl's has rised almost proportionnaly than the decline of Walmart.

Is there hence a direct correlation between those two facts? Well, obviously, if Walmart loses some customers, that means the competition is benefiting from it. Now the article says that Walmart "gives a $7 billion "Gift" to Kohl's,", and I believe it is a bit overrated. Indeed, as most of retailers, when you have such a dramatic change in your category strategy, you will have a deep impact in your historical categories. Nevertheless, Walmart has not decided neither have stopped to compete in this market.

What is sure though, is that Walmart needs to improve its shopping experience and its customer relationship management strategy on its clothing categories. I agree with the article that low prices on clothing items may not be enough anylonguer to secure market shares.

On the other hand, Walmart can't go too far from its original concept: I don't think customers would understand a shift in their everyday low price strategy even though on some specific categories it would help selling better. But this article outlines clearly a key category management issue that Walmart is facing, and a large opportunities to develop sales on the long term for Walmart.