Walmart Resonates Part III: Brands in Command
Last week, I shared my first and second takes on Duncan Mac Naughton’s presentation as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series. Today, I wrap it up with Part III.
Read Part I: Productivity and Plentitude
Read Part II: All Hail Scale!
Separation Anxiety
Back in May, Michael Moore talked about Walmart’s reintroduction of entire categories, rather than just products. Mac Naughton called these “heritage” categories (we call them “the three Fs,” meaning firearms, fishing, and fabric) and he added a somewhat surprising twist to the story. As important as EDLP and OPP (opening price points) are to Walmart, widening the price separation between good, better, and best punctuates their value on the price continuum.
Context is everything, so as Walmart completes its last-phase replenishment of many good-tier OPP items that were cut during Project Impact, it is simultaneously layering on a higher ceiling of best offerings, particularly in its heritage categories. The chorus of Walmart naysayers might call this a risky scheme, but a quick reality check proves otherwise. Strapped consumers don’t always favor a steady stream of cheap, throw-away items and in fact they often prefer to make select investments in high-quality, durable goods that will withstand some wear and tear.
Walmart is currently driving double digit comps in the hunting category by offering items such as $900 shotguns and, in fishing, by raising the fishing rod price threshold from $45 to $100. The company is really just participating in the high-low dynamic that is currently driving all of retail: with dollar stores gaining wider acceptance among higher-income shoppers, retail’s bottom has been lowered, making the entry-level market more saturated and competitive. At the same time, the luxury market continues to buck economic trends as the “haves” keep having. It’s for this reason that retailers such as J.C. Penney who are fighting their deeper descent into the murky middle are bringing in higher-priced items (such as $80 Liz Claiborne handbags). One person’s handbag is another’s hunting rifle; “luxury” is in the eye of the shopper.
Private What?
Walmart’s 2009 revamp of its mega-private brand, Great Value, ranks right up there with Project Impact in terms of industry buzz, and many have taken it as a sign that Walmart was going to embark on a private brand-a-palooza across multiple categories. While those dire predictions never really came to bear, the one-two punch of Great Value’s power proliferation in consumables and Project Impact’s curtailment of national brands created a palpable perception imbalance, if nothing else.
Mac Naughton didn’t hedge one bit on the branding front – national brands are what drives the authority that girds each category and, in apparel, Walmart now sees national brands such as Levi’s Signature as critical to quality perception as well. Walmart’s recent announcement that it will return to the basics that it arguably never abandoned and shutter its New York apparel office had many speculating about the brand implications (establishment of the office in 2009 was another move that had many predicting a private brand takeover). My head obviously wasn’t the only one that snapped around when Mac Naughton went all “national brand” on the audience, as a clarifying question regarding the role of private brands in Walmart’s overall strategy was raised during the Q&A. He didn’t hesitate to put a finer point on the situation, calling Walmart a “house of brands for less,” and stated that private brands would be deployed only when a price that customers need is not available. Suppliers, start your branded, OPP engines!
Mac Naughton also provided additional color by saying that, when Walmart stopped building stores, 9,000 dollar stores “showed up.” The horse they rode in on was “a bunch of entry level price point products” that Walmart couldn’t meet with their brand portfolio at the time. Walmart’s first choice is now a national brand, but if a suitable one can’t be had, they’ll push a private brand forward. In Mac Naughton’s words, “it’s all about price.”
Although Walmart’s appetite for licensed products is well-known in the licensing community, one doesn’t often hear Walmart execs call out licensing as a focus area. Mac Naughton did when he referred to a successful OPP backpack program that featured a licensed Hello Kitty version. I took that to mean that licensed brand providers will find new opportunities in the future, if they can bring on the value.
Scattergories
Mac Naughton blazed through Walmart’s point of view on additional categories. In home, the focus will be on sheets, towels, candles, floor care, and outdoor living. What’s left, you ask? The tchotchkes and pieces that once took up room but didn’t have a point of view. They’re outta there.
The focus in Walmart’s back-of-store entertainment area will be on “value and immediacy,” since the innovation hasn’t really been there lately. 3D didn’t deliver as expected, so Walmart is determined to win in OPP here just as they are in other categories. Walmart rakes in $300 million a year, with its $5 movie bin and its $5 CD business up 13 percent. Mac Naughton threw in a bit of imagery to make the point, saying that Walmart’s core customers are doing “head dives” into those bins (ouch!). Walmart’s overall share of new movie releases is an impressive 40 percent and they had a 45 percent share of the Transformers 3 release. The trick is to drive a bit of aisle crossing when that peak-time traffic hits the store.
If the shelf hogs aren’t flying off the shelves, doubling up on the high-turn, high-profit items that attach to them makes a lot of sense, particularly on the heels of Toys 'R' Us' announcement of its expanded and re-designed CE departments which will feature tablets, headphones, media players and Apple accessories. Walmart is focusing on all manner of iPad, iPod, television, and printer add-ons and increasingly relying on Walmart.com and its in-store delivery mechanisms to execute bulkier pieces, particularly in smaller stores that can’t dedicate the space.
It’s Beginning to Look a Lot Like…
Walmart began working on holiday 2011 at noon on December 25th, 2010, according to Mac Naughton. A cross-functional team has been chiseling away since then on defining Walmart’s holiday point of view and plotting its product flow, daily sales, and service plans. Layaway kicked off in mid-October (earlier for associates) and Walmart’s Christmas price guarantee will ensure that they aren’t beat on price, even after the sale. Walmart’s previous announcement of its ad match program doesn’t run counter to the EDLP philosophy according to Mac Naughton. It just takes care of the anomalies.
Walmart has also taken a stand on which items will drive its holiday must-haves. Mac Naughton shared the top five, which are Elmo Rocks, Leap Pad, Fidget, Call of Duty, and the IPad II.
Mac Naughton closed his presentation by saying that he is as “serious as a heart attack” about growing the business. With Walmart just reporting positive comps for third quarter and its first revenue gain in two years after nine quarters of negative same-store sales, hopefully he will be able to breathe easy come 2012.