Wal-Mart Stores Inc. is working hard to broaden its appeal to compete with e-commerce juggernaut Amazon.com Inc., but that doesn’t mean it’s leaving behind the lower-income consumers the retailer has served.
is, however, facing a competitive threat from dollar-store retailers like Dollar General Corp.
that are beefing up their value proposition to drive sales with these customers.
Much has been made about Wal-Mart’s omnichannel efforts, with e-commerce getting a boost in the months since the Jet.com acquisition, and efforts like online grocery resonating with shoppers.
Most recently, the retailer said it’s taking the “Stores” out of its name starting in February to reflect the customer’s ability to shop with them in whatever way they choose.
Referring to the partnership between Wal-Mart and Hudson’s Bay Co.
retailer Lord & Taylor announced last month, Susquehanna Financial Group analysts say Wal-Mart has taken steps to “further widen the appeal and broaden the base.”
“Lord & Taylor is part of Walmart’s strategy to move Walmart.com up, featuring higher-end brands, and to also have a more diversified offering, more like an online shopping mall,” wrote analysts led by Bill Dreher in a note published last week.
But its efforts to capture the higher-end shopper associated with Amazon
doesn’t mean Wal-Mart is abandoning lower-income customers that might place affordability above all else in its value equation.
“Wal-Mart is looking for other ways to tell the lower income shopper it can serve it,” said Laura Kennedy, director, retail insights at Kantar Retail.
A retailer’s value proposition isn’t only about low price, but can also include factors like convenience and assortment.
But even as Wal-Mart moves to offer more features and benefits, it hasn’t lost sight of the importance of being affordable.
“Wal-Mart will always come back to being the price leader and EDLP [every day low price] provider,” Kennedy said. “They’re trying to do more for the higher-income consumers who already shop there.”
Other retail experts say there could be some risk to Wal-Mart’s efforts.
“Back during the recession, Wal-Mart shifted some of its focus to a new group of shoppers who had not previously shopped Wal-Mart but had started to out of need or perception,” said Jared Wiesel, partner at consulting firm Revenue Analytics. “Wal-Mart’s continued efforts to lure those customers definitely came at a cost as it took their attention away from their core customer.”
However, Wiesel says that Wal-Mart is taking steps to protect market share.
“[I]t continues to heavily invest in price decreases on staple items to protect its core customer base from Amazon and dollar store competition,” he said. “Simultaneously, it’s also expanding its e-commerce offering through acquisitions in an attempt to extend its reach into a customer base currently dominated by Amazon.”
Dollar General, which announced its quarterly earnings last Thursday, said that it plans to open 900 stores next year and has hired its first chief digital and customer engagement officer.
“With our strong store growth, we anticipate that 75% of the U.S. population will be within 5 miles of a Dollar General by the end of fiscal 2017,” said Chief Executive Todd Vasos said on the earnings call, according to a FactSet transcript.
Wal-Mart says that about 90% of the U.S. population is within 10 miles of its stores.
Dollar General has more than 10 million subscribers to its digital coupon program, according to Vasos.
“The fundamentals for the value retail sector are arguably the strongest in all of retail – with the possible exception of the automotive aftermarket retailers,” wrote Raymond James analysts in a Thursday note. “The key bullish themes for Dollar General include industry-leading square footage and revenue growth, accompanied by growing cash dividend and share buybacks.”
Raymond James rates Dollar General shares strong buy with a $107 target price.
Dollar General has expanded its perishable foods merchandise with more coolers, with an average of 18 “cooler doors” across the store base by the end of 2017, up from an average of 10 in 2012.
“We believe that the company has broadened its customer base through a combination of low prices and conveniently located stores, helped by economic necessity on the part of U.S. consumers and a reduction in the prerecession social stigma that surrounded shopping at dollar stores,” wrote RBC Capital Markets analysts in a note published last week.
RBC rates Dollar General shares outperform with a $103 price target.
Wal-Mart shares are up 40.2% for 2017 so far and Dollar General’s stock is up 26% for the period. Both have outpaced the S&P 500 index
, which is up 18.8% for the year to date.