Wal-Mart Looks to the Past for Its Future

Sept. 12, 2007 — -- Sometimes it takes going backwards to move forward. That's the new philosophy Wal-Mart is hoping will take them out of what many call a midlife crisis.

Fifty years ago, Wal-Mart founder Sam Walton said the key to keeping a customer happy was keeping prices low. That vision has made Wal-Mart the retail giant it is today -- offering shoppers a little bit of everything, for next to nothing.

One only has to look into various shopping carts to see the plethora of merchandise customers scoop up at Wal-Mart stories, including everything from mops to candy, electronics to vintage knickknacks.

But the last few years have been less than stellar for the company. Sales have lagged and its image has been challenged.

In response, Wal-Mart is rolling out a new tag line, its first in 20 years. The company is changing from "Always Low Prices, Always" to "Save Money, Live Better," a tribute to its late founder's original business model.

The new tag line made its national debut this morning on "Good Morning America," complete with a new ad campaign featuring images of what shoppers can do with the money they save by shopping at Wal-Mart.

Wal-Mart's chief marketing officer, Stephen Quinn, said the campaign represents the company's true voice.

"We don't claim to be anything in this advertising that is beyond what we really are," Quinn said.

Coming Off a Bad Year

The last few years indeed had Wal-Mart shoppers, and Wall Street analysts, wondering just that. Consider last year's upscale clothing line misstep.

Hoping to mirror rival Target's move in that direction, Wal-Mart took out ads in rather unusual markets, such as Vogue magazine. Analysts and even Wal-Mart itself agreed that it was a bad move and likely alienated its core customer.

Retail analyst Dana Telsey, of the Telsey group, said Wal-Mart is the "discounter for all Americans, and when Wal-Mart tried to adjust themselves to go up in their assortment, to go up in their prices and styling, it wasn't who they were."

Customers seemed to pick up on that as well, a trend clearly visible in Wal-Mart's slowing sales growth.

U.S. same store sales in 2006 grew at just 1.9 percent, the slowest rate for Wal-Mart in 10 years. And while August same store sales (sales at stores opened at least one year) had their best gain since March, up 3.1 percent, Target's same store sales grew at an impressive 6.1 percent.

It may not seem like much of a slowdown to the untrained eye. Wal-Mart remains after all one of the biggest companies in the world. In 2006 alone Wal-Mart pulled in sales of $345 billion at its 6,200 stores in 13 countries around the world. There are 4,000 stores here in the United States alone.

CEO Comments Raise Concerns

While analysts found last month's sales report from Wal-Mart encouraging, they were equally discouraged by recent comments from CEO Lee Scott about the last quarter.

Earnings for the quarter came in lower than expected, leading Scott to say, "Our underlying performance was not what we had expected of ourselves."

He went on to cut the earnings forecast for the remainder of the year. Even more ominous was his observation that the current housing and credit crisis was having a major effect on the company's core paycheck-to-paycheck customer.

It's an observation that's caught the attention of the nation's top economists.

"Wal-Mart is a very important bellwether of the U.S. consumer," said Joe LaVorgna, chief U.S. economist at Deutsche bank. "So very often, as goes Wal-Mart, so goes the U.S. consumer, and by default, the economy."

Wal-Mart's new ads may be making their debut at the right time. As whispers of a possible recession are starting to spread, the company is relaying the findings of an independent study that showed that the average U.S. household saves $2,500 annually by shopping at Wal-Mart.

Wal-Mart is hoping that those four new words, "save money, live better," will invite new customers into Wal-Mart's doors, and more importantly retain its core shoppers.

Keeping those core shoppers happy is what Telsey said is the most important factor in Wal-Mart's new strategy.

"They have to return to their core, and their core customer is Mr. and Mrs. America who are looking for their daily and weekly needs to be fulfilled," Telsey said.