The pressured middle class is starting to reshape the aisles at the Canadian outlets of the world's largest retailer.
Discounter Wal-Mart Canada Corp. is finding a growing gap between the haves and the have-nots as customers in the shrinking middle class react to stagnating job prospects and heavier debt loads.
After the 20th of each month, when government cheques go out, Wal-Mart gets a pop in sales. It gets a surge in business at the beginning of the month, when many people are paid, and softening sales at the end of the month when they run out of money.
At the same time, the retailer enjoys a sales boost in pricier items from more affluent consumers who are returning to the discount chain after having shopped there during the recession.
To respond to these trends, chief executive officer David Cheesewright is dipping into a recessionary tool kit that includes weekly price comparisons with competitors; stocking smaller, more affordable packages of diapers and other essentials; $1 greeting cards at outlets next to a dollar store; and beefing up lower-cost private labels. But he's also testing a new own-brand high-end food line called Our Finest; planning for a smaller city store, dubbed Urban 90, to broaden its customer base; and stocking higher end brands such as Bauer hockey equipment.
Wal-Mart's experience echoes the growing difficulties faced by Canadian households. The gap between rich and poor in Canada is widening at a faster pace than even in the United States, according to a report Tuesday from the Conference Board of Canada.
In the U.S., where Wal-Mart faces more aggressive competition, the titan has moved even more sharply, bringing back its layaway payment plan for the holidays for strapped customers, for instance. It's also re-stocking shelves with a wider array of goods after a botched effort to scale back on products in a bid to introduce more efficiencies.
From customer research, "the two words that keep coming out are: tough and worried," Mr. Cheesewright said in an interview. Customers complain that they're living from paycheque to paycheque. "We see that play out in our store with growth in opening [lowest]prices, with some spikes you get when products are on promotion, with people's propensity to shop around, with the [sales]lift at the beginning of the month and the drop at the end of the month because people are running out of money."
Wal-Mart is also taking steps to welcome back price-sensitive wealthier consumers. "We've bought strongly on the top end. We've bought strongly on the bottom end. Less in the middle,´ Mr. Cheesewright said.
Still, in shifting to more upscale items, the chain risks alienating its core lower-income customers while frustrating the better-heeled, who can lose patience with long lineups at the checkouts, said Robin Sherk, senior analyst at consultancy Kantar Retail in Boston.
Wal-Mart Canada may be able to ease wealthier consumers into its aisles with its plan this fall to expand its fledgling e-commerce site, she added. "Canadians have no problem being cheap, and if Wal-Mart improves its public relations image as they have been doing … then they will further open their following."
Mr. Cheesewright internally had predicted that 2011 would be tough on working families, but the signals of the past few weeks suggest that today's heightened uncertainty will persist – which can benefit a discounter such as Wal-Mart, he said.
To stay well-positioned, he's hired experts to do weekly checks of 60 competitors' prices. In the four weeks up until June, prices on its top 100 products were 12.2 per cent lower than rivals, better than its 11.3 per cent lower prices in the 52 weeks up until the same period, according to its figures.
The chain is also turning its attention to its private-label George apparel line and home decor products, because in difficult times, consumers scale back on discretionary spending but still need to replace worn-out items.
In January, the retailer will begin reaching out to more city dwellers, including affluent empty nesters moving into condominiums, with the rollout of its first Urban 90 format, which will be about 30-per-cent smaller than its average outlet, but still carry all product categories.
Mr. Cheesewright's race over the past several years to add more Super centres with full supermarkets is paying off, more so in market-share gains than in same-store sales increases, he said. Since 2005, Wal-Mart drove 77.3 per cent of the growth in food, health and beauty and other consumer product sales in Canada, according to market researcher Nielsen. That business makes up more than 40 per cent of Wal-Mart's total estimated $20-billion of annual revenue.
Now Mr. Cheesewright is intent on cashing in on rocky times. "You have to have an appetite for the challenge that the economy we're in, at the moment, gives you," he said. "But if you wanted to be with any retailer in the economy we're in, I'd choose to be with Wal-Mart. We're a value player and people are looking for value."