Monday 17 August 2009

Are There Brands in Wal-Mart's Future?

One of the most talked-about retail events of the summer (other than the dismal retail sales figures being chalked up) is the Wal-Mart initiative called Project Impact. The idea seems that Wal-Mart needs to enhance its customer experience in order to bring into the stores more so-called up-scale customers. Such customers, as described in a June 15th article in Business Week ("Wal-Mart's Magic Moment") are viewed as having household incomes of over $50,000, and spend 40% more per visit than the typical Wal-Mart customer.

Or, as said on a Bloomberg podcast of last week, low food prices in the face of the recession have attracted these customers into Wal-Mart, but what will induce them to continue to seek the Wal-Mart experience after the recession comes to some kind of end. Surprisingly, at least to me, part of the answer seems to be--the custom of trade marks. I say "surprising", because the common wisdom is that the distribution clout of Wal-Mart had put paid to the role of trade marks: low prices and and the unparalleled retail excellence of Wal-Mart management, and not the draw of product brands, has been the centerpiece of the chain's success. What was crucial is whether your brand enjoyed a presence on a Wal-Mart shelf. The drawing power of the brand itself was far less important, if not largely irrelevant.

Against that backdrop, I was fascinated to read in the Business Week article about how brands may now play a potentially more crucial role in the success of Project Impact. While Wal-Mart will not be making a mad dash to become the preferred source of "aspirational goods" that so characterized up-scale retailing during this decade, it appears that the chain is paying closer attention to the brand mix of their products, under the view that the products themselves will hold and increase custom in the stores, at least for some product lines. Where once the only brand that really only mattered at the chain was the "Wal-Mart" service mark and brand, there is now a more balanced view of the relationship, at least for certain product categories.

This more balanced role of third-party manufacturing brands was described in the Business Week article as follows:
"The spruced-up aisles provide a more inviting home for brands that previously had little exposure in Wal-Mart but are now desperate to find customers. Newer offerings range from Danskinapparel to gadgets from Dell, Palm, and Sony .... The home department now features brands such as KitchenAid and Dyson, and a new line of products endorsed by celebrity chef Paul Deen."
This does not mean that Wal-Mart will suddenly become the advertising vehicle for these brands. As the article points out, Wal-Mart will be "putting pressure on manufacturers to advertise more in stores ..." But such increased advertising by manufacturers makes sense only if there is pereceived mutual benefit for both the brand owner and the retail chain itself. It remains to be seen how this will all play out. "Podcast-land" has weighed in both pro and con on the likelihood of success of this strategy.

Brands Desperate For Customers?

If the more up-scale customers desert Wal-Mart at the end of the recession, there may be a mis-match between the chain's typical customer and the product mix available at the stores. On the other hand, if the availability of these brands, especially under the tight price controls for which Wal-Mart is famous, helps to keep these customers in the stores, there may be a "win-win" situation. I say "may" and not "must", because I presume that Wal-Mart will seek to impose its pricing power on the cost of these branded goods to the chain.

Will the Apples and Sonys of the world be prepared to submit themselves to the purchasing dictates of Wal-Mart; if so, how will these pricing arrangements affect the relationship of these manufacturers and their brands to their other channels of distribution; will these brands ultimately reap a net benefit by their presence at Wal-Mart, or will the arrangement redound primarily to the benefit of Wal-Mart? Given Wal-Mart's clout, the answer to these questions will be carefully scrutinized in the years to come.

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