Markets & Finance

Wal-Mart Fishes Upstream


It was not just another Wal-Mart store opening. On Mar. 22, thousands of shoppers, vendors, and media got a glimpse of what could be the Store of the Future for the No. 1 worldwide retailer. This upscale version of a Wal-Mart Supercenter in Plano, Tex., is a 203,000 square-foot laboratory where management intends to test some radical strategies and tactics that aren't in the tried and proven Wal-Mart (WMT) playbook.

For many of us -- and a handful of Target (TGT) managers who showed up to spy on the competition -- the first impression was that you were someplace else. It looked a lot, like, well, a Super Target. "You copied us," complained one Target official to Marcus Ludwig, the manager of the Plano Wal-Mart.

For Ludwig, the hostile comment was water off a duck's back. The 16-year Wal-Mart veteran makes no apologies for taking into account rivals' customer-pleasing strategies. "This store is a laboratory for us to see if we find better ways to do things, and we've scouted out all kinds of competitors," explains Ludwig, adding that Wal-Mart's pioneering box-store formats and other strategies have always been widely imitated by other retailers.

SOUP TO NUTS. And first impressions aside, this new-generation Wal-Mart isn't just a Target copycat. As you continue through the store, you find not the standard-issue McDonald's (MCD) but a Kick's coffee and snack shop that has the looks -- and nearly the prices -- of a Starbucks (SBUX). Wander into "Foods" and you may think you're at Whole Foods (WFMI) or Central Market, the successful high-end stores of Southwestern grocer H.E.B.

There's a big wine section -- more than six times larger than the usual Wal-Mart wine shelf -- that features a 2004 Pouilly Fuisse for $20.37 alongside the customary $5.57 brands. There are 500 (four times normal) natural or organic food lines -- and even a small sushi bar. Altogether, there are more than 2,000 premium items in wine, dry grocery, meat, cheese, and produce that are new to Wal-Mart.

In "Electronics," the $3,000 wide-screen TVs, the build-your-own computer components, and, yes, dozens of those slick, super-aggressive sales guys remind you of a trip to Best Buy (BBY) or CompUSA. Auto parts and fishing gear have been deemphasized, and guns aren't sold at all.

SPLIT IDENTITIES. By contrast, in the standard Supercenter, customers get the impression of one endless, cluttered shopping area. There are hundreds of freestanding displays in the aisles. Loud, foot-high "Always Low Prices" signs call attention to 20-lb. bags of Scott's Weed & Seed for $14.14 and coolers for $3.97. Stacks of Purina Cat Chow for $9.28 sit next to Banzai Fall water slides for $399.88.

The Plano store goes much further toward a department-store approach, with each department establishing its own separate identity. Clothing, for example, has its own prominent "Fashions" billing at a center kiosk. Customers now have more private dressing rooms and can get their purchases rung up without going to the main checkout.

There are few freestanding "stack bases," and merchandise is organized in logical sequence, by department. It's still easy to spot a price point, but the signage doesn't scream. Together with softer lighting and fewer blaring announcements, the effect is a quieter, warmer shopping experience.

SHOCK OF THE NEW. But will the regular Wal-Mart customer like all this change? The jury was out on opening day -- and probably will be for months. Latoya Marshall, who had put a precooked rotisserie chicken and some children's clothing in her cart, said the store felt "spacious" and "organized" but was skeptical. "Maybe that's just because it's new." Another first-day shopper -- Lynette Florey, who purchased towels and other items for her new home -- liked the clean, fresh look but was a little disappointed. "I thought they'd have a lot more specials."

Wal-Mart realizes that changing its formula could risk alienating its bread-and-butter customers -- and it intends to proceed cautiously in rolling out any changes to its 3,700 U.S. stores. On the other hand, the chain is eagerly looking for additional ways to grow.

In Plano, it has clearly taken any good idea it can find, added its own touches, and said: "Let's run with it." John Fleming, Wal-Mart's chief marketing officer, vows that ideas that don't work will be quickly modified or dumped -- and that innovations that "resonate" with customers will be considered for other stores.

RURAL APPEAL? By picking Plano, an affluent suburb of 250,000 some 20 miles north of Dallas, Wal-Mart will have a chance to see if it can appeal to consumers who are more affluent than its typical customer, with an income in the $30,000 to $40,000 range. Wal-Mart's grocery departments have already won a big following from high-income consumers. The new format could be inviting enough to get some of those shoppers to try out other departments.

But even if merchandise plays in Plano, will it play in Peoria? Joseph Farnan, national director of trade development for E&J Gallo Wineries, points out that in the wine category, Plano's urbanized consumers will likely step up to some of the higher-priced brands, but that the same lineup might not sell nearly as well in rural areas, where many of Wal-Mart's stores are located.

Still, long-time Wal-Mart vendor Gallo would love to see the Plano wine department take off and be a model for many other stores in the chain. With some 120 linear-feet of shelf space dedicated to wines and wineries, distributors will have enough space and scale to try out different wines and price points and to do frequent store promotions. "This department has the potential to really add to the store's average ring," says Farnan.

WIDER RANGE. Ken Johnson, the owner of Kicks Coffee Café, is leasing prime space at the new store. He believes his shop could be a winning new concept for other Wal-Marts. Besides premium coffee drinks and pastries, Kicks serves fresh sandwiches, a $4.05 Angus burger, and individual pizzas (the popular seller on Day One). His Starbucks-like atmosphere has comfortable seating, including a sofa, closed-circuit TV, and free Wi-Fi.

The upscale approach to food-service is one of Wal-Mart's efforts to serve existing customers and reach out to new ones, but affordability will still be Wal-Mart's signature, insists store manager Ludwig. But he admits affordability is a fluid concept. "We're going to have the Paul Newman dressing -- but this will be beyond Paul Newman to [high-priced] Balsamic vinegars."

Ludwig is a veteran of Wal-Mart store openings, and the customers have always piled in. But he admits to having been nervous that customers wouldn't arrive at his unconventional Wal-Mart. He didn't need to worry: The parking lot was full and the customers piled in.

But the real test for the Plano store will come in the months ahead. It not only needs to keep customers coming back but to demonstrate to Bentonville (Ark.) headquarters that some of its modern ideas can make the world's biggest retailer even bigger.


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