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The state of the economy is having a heavy impact on the spending patterns of many Wal-Mart customers, said H. Lee Scott, president and c.e.o of Wal-Mart Stores, Inc. at Goldman Sachs' 11th Annual Global Retailing Conference. But while some conditions are real, such as high fuel prices, others may be exaggerated in consumers' minds by negative media reports.
Wal-Mart frequently asks consumers to list their key concerns regarding world "environmental" events, said Scott. Lately, energy prices are frequently at the top; a year ago, war and terrorism, which are still major issues for shoppers, often headed the lists.
Scott said the company estimates that 20 percent of its customers live paycheck to paycheck and do not have a checking account. "The Wal-Mart core customer is clearly economically challenged. If you see them at the cash register, they have an envelope in hand, are buying large baskets of food and are paying cash. When you take disposable income out of their pockets and transfer it to oil companies, it is money they can't spend. This is also a group of people who doesn't save at a high rate."
Many of these and other Wal-Mart customers receive their only news of the outside world through television and other media. Unfortunately, said Scott, these mediums often paint an unbalanced picture of economic conditions. The perceived negativity can further hinder consumer confidence and spending.
"I wouldn't say all our customers are politically active. If you listen to TV, where most people get their news, you would think the economy is in terrible shape. The media does not communicate a lot of the positive side. Therefore, you see a lot of people very worried about the economy, even though there are a lot of good numbers in the economy -- unemployment is 5.4 percent, and housing is strong. Those things will continue to have an impact through the election. Terrorism and war in Iraq are weighing on people's minds. They are cautious about the world and worried about their families. This creates an environment that is challenging."
The trick for Wal-Mart, said Scott, is to offer merchandise that these consumers both need and can afford. "We have to be relevant in price and merchandise. You have to make sure that when the customer walks into the store, you are speaking to what it is they are interested in."
Compounding this challenge is the fact that not all of Wal-Mart's customers are low income. Wal-Mart must devise ways to serve and attract both groups, be it on a regional basis or within a single store. Scott said that Mike Duke, e.v.p, president/c.e.o. of the Wal-Mart Stores division, and his team are getting better at serving broader groups of customers.
Sam Clubs' customers, added Scott, are also more affluent and less affected by high fuel prices. Members' incomes are $50,000 a year or more. "Neiman Marcus' sales increased. In some ways, clubs have had the same experience." He labeled Costco and BJ's, which have also been successful, as "good competitors."
While Sam's financial performance has been improving, Scott said the chain has room to improve what he calls "advantage merchandise." These are products Sam's members purchase for personal use. "We call them 'Wow' items. They are things people in this room would buy. We have to get better at them."
-- A report from Retail Merchandiser, Progressive Grocer's sister publication