iStock.com/Alexander Farnsworth
May 24, 2024
Will Walmart Retain Affluent Shoppers as Inflation Subsides?
Bill Simon, the former president and CEO of Walmart U.S., believes Walmart’s service proposition still isn’t where it needs to be to hold on to the higher-income customers that have traded down to the chain during the inflationary cycle.
“The Walmart experience is better than it used to be, but it’s still not a premium experience,” he recently told CNBC’s Fast Money. “Walmart is built on convenience, cost and assortment. Not on service. As the economic challenges abate…service will become more important than convenience and price. And we’ll see a shift back of some of the consumers. That’s the bubble.”
He still called Walmart a “great investment” over the next 12 months as he suspects inflationary pressures will continue. However, within two years, he believes Walmart could face trouble as food inflation subsides.
Simon added, “When inflation abates and service becomes more important than price, some of those tailwinds will become headwinds,” Simon said.
His comments arrived as Walmart last week reported that wealthier shoppers flocking to Walmart helped drive better-than-expected first-quarter results.
The upside was led by better-than-expected growth at Walmart U.S., which saw same-store sales grow 3.8%. John David Rainey, Walmart’s CFO and EVP, said on the company’s analyst call, “We’re seeing higher engagement across income cohorts with upper-income households continuing to account for the majority of the share gains.”
When asked what Walmart is doing to be more attractive to higher-income households, Rainey said, “The word we’ve been using here is convenience.”
Convenience not only includes one-stop shopping ease but investments in curbside pickup and delivery, which skews toward higher-income consumers.
E-commerce at Walmart U.S. climbed 22% in the first quarter, led by store-fulfilled pickup and delivery along with the company’s expanding third-party marketplace. The first quarter marked the first time delivery orders exceeded pickup in the U.S., boosted by the ability to offer additional items online, including third-party Marketplace items, as well as continued double-digit growth for Walmart+, its membership program that offers unlimited deliveries.
Walmart also introduced on-demand early morning delivery to customer doorsteps as early as 7 a.m. and as quickly as 30 minutes. Overall, Walmart also continues to shorten average delivery times. In the Walmart U.S. segment, 4.4 billion items were delivered the same day or the next day over the last 12 months, with about 20% of those delivered in under three hours.
Rainey said the amount shipped is “on par with any e-commerce player in the world.” He added, “That shows that customers are coming to us and we’re a consideration where we haven’t been before. And convenience matters to someone irrespective of what your paycheck is.”
John Furner, current president and CEO of Walmart U.S., also cited “quality improvements” in fresh food, including produce and meat, as another reason for Walmart’s newfound appeal with wealthier shoppers.
Additionally, Furner pointed to the potential of bettergoods, Walmart’s new chef-inspired yet affordable line. The range, the chain’s largest private-label food brand launch in 20 years, centers on better-for-you, free-from, and plant-based foods with 70% of the items priced under $5. Doug McMillon, CEO of Walmart, said on the call, “This is the type of quality and value that will resonate with customers across income spectrums.”
Walmart’s stores are also undergoing remodels, according to Bloomberg, that include brighter lighting, wider aisles, and the addition of mannequins to complement elevated assortments.
“This is about modernizing the brand and making it seem chic and cool,” Oliver Chen, an analyst at TD Cowen, told Bloomberg. “Walmart is good at basics and wants to be known for more than that — and sell more than that.”
In the Q&A session, McMillon cautioned that while expanded online assortments and elevated convenience have helped Walmart better connect with upper-income households, value holds broad appeal. He said, “We’re not trying to chase higher-income cohort sales. We just offer value. If you look at what’s happened historically, people with higher incomes have shopped Walmart. They’ve just been selective in the categories that they buy and the items that they buy. So, if we offer them the right items at the right prices whether that’s in-store, first party or marketplace, they’ll respond to that.”
Discussion Questions
Is Walmart better positioned to hold on to the uptick in upper-income customers shopping its stores and website in recent years versus previous trade-down periods?
Will convenience, product, service, store ambience, or some other factors stand out as critical in supporting retention?
Poll
Loading …BrainTrust
Karen Wong
Co-Founder & CEO, TakuLabs Ltd.
Dick Seesel
Principal, Retailing In Focus LLC
Frank Margolis
Executive Director, Growth Marketing & Business Development, Toshiba Global Commerce Solutions
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In terms of retention, research from the GlobalData consumer panel shows that 77% of those who have started shopping at Walmart for groceries over the past couple of years say they intend to continue frequenting the store. This is good news for Walmart, although it arguably needs to be aware that a sizeable minority may switch grocer as and when the economic cycle picks up. The bigger challenge is to get more of these newer customers to cross the aisle to buy general merchandise – and there is far more hesitation here. However, Walmart’s committed investment to improve its stores will help on this front.
Bill Simon was part of Walmart’s problem, so it’s hard to imagine he would remotely understand the solution. He didn’t treat his workers well, insisted on opening stores where they were neither wanted or needed, and generally created a situation where an upper income person with conscience could not shop there.
i have said this before and will continue to say that Doug McMillon has changed Walmart’s entire energy. The pandemic helped. Amazon did not help itself, and many of the grocery M&A’s over the past decade have yielded few benefits.
As long as Walmart continues in its role as a good corporate citizen, pay its workers better, continues pricing sharply and does not bully its vendors, I see no reason for its gains to be lost
Those of you that know me, know I was never a fan of Walmart. McMillon has turned me around have you noticed how the number of worker complaints have dropped? I have.
carry on!
Yes , this. For a while Walmart , in my area, was opening stores less than a mile from each other. You could literally drive a 18 wheeler truck through the store because it was not needed and the customer count did not support the sales it needed. This has changed over time with the change in leadership. Walmart has changed for the good over time, and I like you was never a fam either, but I strongly believe it will keep its uber customers now more so than ever. Customers tried it, they liked it, and are seeing value from them.
I agree with Paula. They aren’t the “bad” brand that so many used to regard them as…in the eyes of more affluent shoppers, Amazon is taking it’s place. With the innovative experiences Walmart continues to try, the product assortment and pricing, plus the focus on convenience, I think they’ll likely hook more long-term
than they don’t.
Time will tell. Just because they are doing some things that appeal to affluent shoppers who are in the stores now doesn’t mean they will retain them. And what shoppers say they are going to do and what they actually do can be two very different things. My forecast is that when inflation moderates somewhat that shopping patterns will also shift. When I think “chic and cool”, it’s not Walmart. Further, in our consumer research across numerous markets, shoppers don’t give them much credit outside of price.
Walmart now offers more attractive benefits compared to previous trade-down periods. Robust omnichannel convenience, Walmart+ memberships, premium private labels and partnerships boost Walmart’s appeal among shoppers across income levels.
Exciting investments in the store experience and efforts to attract younger, urban shoppers will keep customers loyal even when the economy rebounds.
Affluent customers will continue to shop at Walmart even if the economy recovers. Let’s follow the logic. Many affluent consumers shop at Walmart not out of necessity, but because they want to.
As Doug McMillon pointed out, Walmart has improved its ability to connect with upper-income households due to expanded online assortments and increased convenience. As well as drawing wide appeal, value appeals to many affluent individuals, who happen to be value shoppers “just because.”
Over time, Walmart’s appeal has broadened. It has become more than just a retail chain for people of certain income levels. Besides value, Walmart’s ability to stock almost every brand or sku is popular with people of all income levels. As Walmart encourages suppliers to maintain stock levels, Walmart shelves probably have fewer empty spaces than other retailers. It appeals to everyone.
In recent years, Walmart has expanded its inventory to include premium, niche, and specialty products that were not available ten years ago. This expansion has also enabled Walmart to attract a more affluent customer base. Db
Walmart has taken steps in terms of content and store experience to become less vulnerable to economic cycles, and the growth of its online business has provided another buffer. That being said, observers have watched Walmart gain and then lose share through many economic ups and downs over decades, so it’s too early to tell if this time will be different. It’s the opposite side of the coin from Target, which tends to lose share to Walmart and the dollar stores (as it’s doing now) during periods of pronounced inflation.
In spite of the surveys, this is a trend that will not last. Upper end shoppers are not going to stick with a shopping experience that puts them next to the hoi polloi (IE the rest of us). I also thinks it represents a small amount of virtue signaling (“I bought it at WM”). Watch and learn as people return to other stores for their everyday items…
The biggest challenge Walmart has is getting a new customer to actually try shopping their stores once. Preconceived notions may keep these potential customers away, but once they’re in the store, the low prices and sheer product assortment (180K+ SKUs) keep the majority of them coming back.
A lot of customers, go on word of mouth. They have to see it for themselves because they have those preconceived notions that you speak of…
What will keep higher-income shoppers going to Walmart? Convenience, convenience, convenience. In today’s lifestyle, convenience has best way to the top of shopper needs, high-income or not. Shopping is no longer an adventure or entertainment. It is a need. Walmart will win on this trend.
This is exactly what happened with dollar stores during the last downturn. A lot of higher income consumers came for the low prices and stayed for the convenience…
No brand can be equally all things to all people. Walmart is a good substitute for Amazon’s convenience oriented customers but Walmart positioning and product mix make it a shopping destination not a high-margin discovery one.
Some will perhaps, but I just can’t see it happening on a large scale. Prices are certainly a draw but as inflation (hopefully) fades, shopper emphasis pivots to in-store experience, quality, selection and other variables Walmart has often struggled with. BOPIS may well continue to draw some shoppers, where you can get Walmart pricing without the necessity of going in-store.
There are various levels of affluence, so there is no one right answer. But, there are a couple of assumptions.
The first is that the affluent expect service that is likely beyond the service Walmart can give.
The second is the affluent don’t want to shop in Walmart. This is reinforced by recent research that tells us the affluent judge hotel properties by the other guests who are staying there.
Another consideration is time. I understand that Walmart may likely have access to most any grocery brand they select to sell (with exceptions, of course). But I seriously doubt HNWIs want to sort through price-driven brands while looking for something consistent with their taste.
To be fair, some products lend themselves to broader markets. Paper, personal products, etc. This is where Walmart can excel.
I seriously doubt there is much opportunity in-store. On the other hand, there is an opportunity with delivery services and store pick-up. But, they have to train their employees. With an apology for being anecdotal, I tried the latter this weekend. I learned they’re not there yet.