Wal-Mart's New Infatuation and Its Old Flame

Retailer Wants to Lure Stylish Shoppers, Keep Staple Seekers

ROGERS, Ark. -- Wal-Mart has a new love, and her name is Gracie.

That is what company executives call the stylish female bargain shopper for whom they created the hip new clothing line Metro 7. They're also wooing her with everything from organic kiwi to sleek, redesigned futons.

But Wal-Mart Stores Inc. already has a loyal customer, one who shops its stores four, even five, times a week. Her name is Karla. She's on a tight budget and doesn't have time for fads. All she wants is low prices.

Company executives seem torn between the two. In meetings here with reporters this week, they repeatedly cringed at the idea of going "upscale," trumpeting their commitment to the working-class Karlas of the world. But then they rolled out the $698 tile-top patio table designed with you-know-who in mind.

Whether Gracie and Karla can live happily together remains to be seen. But Wal-Mart is determined, at least for now, to juggle both.

"It requires a delicate touch," Wal-Mart chief executive H. Lee Scott Jr. said. "The message can get confused. We want to keep our loyal customers who have made us the company that we are today. . . . We also want people who are in our stores to buy more broadly."

Since the first Wal-Mart was built here in 1962, the company has focused on one goal: low prices. That no-frills approach still defines the retailer. Founder Sam Walton drove a 1979 Ford pickup truck even after he made millions. Top executives today work in shabby offices surrounded by cubicles. And at a reception for reporters here this week, the fare included crab Rangoon, shrimp skewers and lasagna -- all from Wal-Mart or its wholesale division, Sam's Club, of course.

Such single-minded drive has turned Wal-Mart into the world's largest retailer. But in recent years, it has also resulted in sluggish sales growth, as the company has been consistently outstripped by its cooler, more innovative rival, Target Corp.

That has led Wal-Mart to reevaluate its relationship with Karla. She may be loyal, but she has her flaws. According to analyst Jeffrey P. Klinefelter with Piper Jaffray Cos., the average household income of Wal-Mart shoppers is between $40,000 and $45,000. Target shoppers average about $60,000. That makes Karla more susceptible to economic downturns and rising gas prices, which Wal-Mart blames for slowing sales.

The retailer believes that if it's going to grow, its future lies with Gracie, who has more disposable income and is more financially resilient. It promoted John Fleming, a former Target executive, to chief marketing officer last year. It's revamping merchandise in home, apparel and electronics and upgrading its food selection. And it has dropped the smiley face from its advertising in favor of catchy slogans.

"You will see we are changing the way that we communicate with the customer, because through customer insights, we now understand better what she wants," said Eduardo Castro-Wright, the newly appointed head of Wal-Mart's U.S. division.

The key word is "wants." That is the essential difference between Karla and Gracie, both among the 138 million people in the United States who shop at Wal-Mart per week. The former is looking for what she needs. But Gracie shops for what she wants.