Wal-Mart's New Infatuation and Its Old Flame
Retailer Wants to Lure Stylish Shoppers, Keep Staple Seekers

By Ylan Q. Mui
Washington Post Staff Writer
Saturday, April 22, 2006

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.

Michele McKnight of Rogers is a real-life Karla. She goes to Wal-Mart about five times a week. On a recent afternoon, she pushed a cart through a Wal-Mart here as her three sons roamed the toy aisle. It was 7-year-old Quinton's birthday, which meant he got to pick out any toy he wanted under $10.

She had intended to just run in for trash bags and deodorant. But as usual, her cart just seemed to fill itself.

"If you look at my checkbook, it's Wal-Mart, Wal-Mart, electric bill, Wal-Mart," she said. "Anything that I buy, I get at Wal-Mart."

She's not kidding. Quinton's outfit, 15-month-old Zander's pacifier, even her purse are all from Wal-Mart. But when asked about the trendy Metro 7 line, McKnight scoffed. She's a single working mother, she said. She doesn't have time for all that.

Jennifer Alexander, a 30-year-old from Rogers, is more of a Gracie. She browsed through the clothes, absently picking up a pair of pants and sorting through shirts. Most of her clothes come from Cato or Target, she said. She has been losing weight and wants to buy trendier apparel to show off her new self, she said.

For meat, she goes to a local grocery chain because, she said, it's fresher. Wal-Mart is where she gets her cleaning products.

"I try to avoid the place," she said.

Wal-Mart estimates that its most loyal shoppers visit its stores more than once a week on average and spend 77 percent of their grocery dollars there. But more selective shoppers, the Gracies, go to Wal-Mart less than once a week and spend only 28 percent of their grocery budget at its stores.

The retailer is hoping to capture more of Gracie's dollars through stores like the prototype recently opened in Plano, Tex., which sells $500 bottles of wine and premium cheeses. To present its new "affordable luxury" merchandise to reporters, the company hired models, including one leggy woman lounging on a bed in a lace beaded jacket with a glass of wine, a plate of strawberries and some handsome arm candy.

Still, Wal-Mart executives went out of their way to stress to reporters this week that they have not abandoned their traditional customers. In fact, Chief Financial Officer Tom Schoewe said he is frustrated by all the media attention on the Plano store. He said he wished there were as much focus on the store in Evergreen Park, Ill., which has beefed up its supply of ethnic hair care products.

"It's not Plano," he said.

Analyst Marcia Mogelonsky with Mintel International Group Ltd., a market research firm, said she thinks Wal-Mart can cater to both types of shoppers without alienating either because of its unique position as the world's largest retailer.

"Remember, Wal-Mart's scale is huge. Wal-Mart can have both, easily," she said. "They do have room for the whipped-cream drinks and the regular coffee."

Or maybe Wal-Mart's shoppers will be the ones to change. Maybe Gracie and Karla are rubbing off on each other.

McKnight said she has noticed an improvement in Wal-Mart's produce selection. She now buys organic fruit to feed her kids. Once, she said with pride, she even bought mahi-mahi.

"We're not afraid," she said.