Moving Up With Wal-Mart

N E W   Y O R K,  Dec. 27, 2000 -- By the end of the year, the company that built nearly $200 billion in sales on such mundane products as paper plates and lawn mowers will unseat General Motors Corp. asAmerica’s largest company.

Wal-Mart Stores Inc.’s rise to the top isn’t just a sign of theretailer’s mastery of “everyday low prices,” powerful logisticssystems and cutting-edge technology. It also reflects Americans’continuing love affair with the discount sector, which is tappinginto the increasingly sophisticated tastes of budget-consciousconsumers. Discounters are also appealing more and more to upscaleshoppers who just don’t want to spend a lot of money for certainitems.

“Wal-Mart has given consumers a new and appealing connotationto value, and in the process raised the stature of discounting,”said Kurt Barnard, publisher of Barnard’s Retail Trend Report,based in Upper Montclair, N.J.

“Discounters used to be places to go because you couldn’tafford shopping anywhere else,” said Wendy Leibmann, president ofWSL Strategic Retail, a consulting firm based in New York. “Nowit’s a sign of a smart shopper.”

Cocktail Drinkers Loved the Towels

While the discount industry has been bruised a bit by highergasoline prices, it is expected to fare much better than departmentstores and specialty retailers as the economy slows.

It’s attracting people like Jane McCarthy, a 36-year-old seniormarketing manager from Yorktown Heights, N.Y., who calls herself a“discount queen.”

Each week, the mother of a 3-year-old shops at one of thenation’s three largest discounters. Target is her favorite becauseit has a lot of unique items, but she turns to Wal-Mart for toysand garden supplies. At Kmart, she buys Sesame Street clothing, andalso gives kudos to its Martha Stewart Collection of bathaccessories.

“I threw a cocktail party, and my guests loved the towels,”she said.

Discount Stores Move in Opposite Direction

Over the past decade, the U.S. discount retailing industry hasexploded into a $203 billion business, representing 9 percent oftotal retail sales, excluding autos. That’s up from $84 billion, or5.8 percent of retail sales, in 1990, according to Shelly Hale, ananalyst at Banc of America Securities.

The discount sector is now twice the size of the departmentstore business. Over the same period, department stores watchedtheir retail share fall from 5.9 percent of sales to 4.4 percent.

Why the shift? For one, department stores’ deterioratingcustomer service has leveled the playing field with discounters,said C. Britt Beemer, president of America’s Research Group, aCharleston, S.C.-based market research firm.

And as discounters improve their selection of toys, electronicsand other desirables, they make themselves more of a one-stopconvenience for shoppers. Last year, for example, Wal-Mart unseatedToys R Us as the biggest seller of toys.

Hale expects the next big victim after department stores to begrocery retailers, as discounters — particularly Wal-Mart — expandtheir food offerings at their “Super Centers.” The retail conceptoffers full supermarkets and general merchandise offerings underone roof.

Almost Chic to Shop in Their Stores

Discounters aren’t just appealing to consumers on price alone.Over the past couple of years, they’ve made it almost chic to shopat their stores, developing new brands and acquiring licenses.

The trendiest is Target Corp., which has turned its redbulls-eye logo into a hip icon by plastering it on TV advertisingand clothing. The chain, which caters to a more upscale consumerthan the other two, has also made its mark in housewares,particular with its glassware collection under the Michael Graveslabel.

Kmart Corp., the weakest of the Big Three, has pinned sales tothe doyenne of domesticity, Martha Stewart, whose label is theretailer’s top seller.

“‘Martha Stewart’ is drawing a new customer, as well asattracting the old customer,” said Laura Mahle, manager of homepublicity at Kmart.

Citing the retailer’s overall push to more upscale-lookingproducts, like pashmina shawls, she said: “We’re educating thecustomer, in general, who wants attention to detail.”

Build Brands With Cache

Wal-Mart is also aiming to build brands with cache. Next monthit will be the first discounter to roll out a trendy teen fashioncollection under the Mary Kate and Ashley Olsen label, named afterthe pre-teen TV celebrities. This past fall, Wal-Mart began rollingout it’s own brand of wine under the Alcott Ridge Vineyards label.

“We are trying to improve the quality of the products,” saidJay Allen, vice president of corporate affairs at Wal-Mart. “Ithink that the only people who have no business walking in Wal-Martare the ones that don’t care about saving money.”

What he really means is that Wal-Mart should be a store foreveryone.