Is that a Bentley in the Walmart parking lot?
Even rich people like saving money. And it seems they’re doing so lately, by shopping at the store that promises everyday low prices. But how long will they do so, before deciding Walmart just isn’t for them?
Walmart executives are confident they’ve cracked the code, and can keep these higher-income shoppers for good. One of their predecessors, however, isn’t so sure.
Walmart last week reported strong sales growth over the past quarter, much of it attributable to shoppers who earn more than $100,000 a year.
“Over the past three years, Walmart has increased its share of households earning over $100,000 by 2.26% – the highest increase of any income bracket,” GlobalData Retail analyst Neil Saunders wrote in a note to clients. “We have also found that, over time, higher-income consumers divert an ever-greater share of their consumables spending to Walmart, which shows a broad acceptance of its proposition.”
“If you look at what’s happened historically, people with higher incomes have shopped Walmart” during challenging economic times, CEO Doug McMillon told investors. But “we’re not trying to chase higher-income” shoppers, he said. “We just offer value.” Across the store, by Walmart’s count, it currently features some 7,000 rollbacks, particularly in the grocery aisles, which is as appealing to higher-income shoppers as it is to everyone else. “If we offer them the right items at the right prices,” McMillon said, “they’ll respond to that.”
But eventually, the reputation that Walmart has among some shoppers as not being the most pleasant place to shop, may catch up with it. That’s according to someone who should know – former Walmart U.S. CEO Bill Simon.
“When money is tight, people react. Even high-end consumers react,” he told CNBC. “It happens every time there’s an economic challenge.” And when conditions improve, “some of them stay and some of them go.”
And he expects the same to happen this time. “The Walmart experience is better than it used to be, but it’s still not a premium experience,” he said. “Walmart is built on convenience, cost and assortment. Not on service. And so as the economic challenges abate, and we all believe that they will eventually, service will become more important than convenience and price. And, we’ll see a shift back.”
Current Walmart executives believe it will be different this time. “We are not just a play for value anymore,” Chief Financial Officer John David Rainey told investors. “Convenience matters to someone irrespective of what your paycheck is.” Current Walmart U.S. CEO John Furner pointed out that delivery, for example, is an important service that higher-income shoppers appreciate. “That’s where we’ve seen a lot of growth,” he said. Overall, “we’re very focused on value, flexibility and convenience, and that’s working across income segments.”
So how long will higher-income shoppers trade down, and give up the perks of their once-favorite high-end retailers in order to save some bucks at Walmart? Saunders, for one, expects the trend to continue for a while longer. “While the rate of inflation has moderated, most Americans remain uncomfortable with food prices and are still actively looking for ways to keep their spending in check,” he wrote. “This ill wind has blown itself in Walmart’s favor.”
So next time you find yourself at Walmart, try to avoid the limos pulling into the parking lot and the bejeweled blue bloods paying with their gold card at the checkout. They may get in your way for now, as you seek out good deals. But if some pundits’ predictions are true, don’t worry – because they may not be there for long.
Image source: Walmart
