Wal-Mart finds fewer sales going upscale

A Wal-Mart store in Chicago.

TEXT OF INTERVIEW

KAI RYSSDAL: No company likes its dirty laundry being aired in public. Especially a company like Wal-Mart. And yet, especially not on the front of the business pages of the New York Times.

Though that's exactly where the company found itself today. Reporter Michael Barbaro got his hands on a report criticizing Wal-Mart's so-far unsuccessful attempt to climb out of the bargain basement. Michael Barbaro, what does this report say?

MICHAEL BARBARO: What this report says is that a lot of the things that Wal-Mart is most proud of — its all-in-one shopping format, its unbelievably wide selection — are actually not very good for Wal-Mart when it comes to trying to sell fancy things like dresses and fancy televisions. And that's a surprise to Wal-Mart, and I don't think they anticipated the things that they value most might actually hurt them as they try to go upscale.

RYSSDAL: Are they just not doing it right, or is it a matter of the customer associating Wal-Mart with not upscale goods?

BARBARO: It's a combination of both things. For one thing, they've made some big miscalculations. They carried some very, very tight jeans, for example, that don't fit a lot of their customers, who tend to be heftier. And then their customers don't think of them for tight jeans — possibly because they're heftier, possibly because they buy them at Cole's and at J.C. Penny's and at Target. So it's a combination of Wal-Mart screwing up a little bit and customers not thinking of them for things like fashion.

RYSSDAL: This isn't a Wal-Mart report. Who wrote it?

BARBARO: This is definitely not a Wal-Mart report, and it's not a report that Wal-Mart wanted to get out. It was written by their advertising firm, called GSD&M.

It's based in Texas, and they've worked with Wal-Mart for about 20 years — they know Wal-Mart inside and out. But Wal-Mart was about to search for a new advertising firm, and this company wrote this report as part of an effort to remain Wal-Mart's advertising firm.

RYSSDAL: And did they?

BARBARO: They didn't. It's not clear that it's because Wal-Mart didn't like what this report said, but in any event, Wal-Mart chose different advertising firms to do all of its marketing.

RYSSDAL: You cover retail and you've been doing so for awhile, so let me ask you a subjective question: Do you think it's worth it for Wal-Mart to try to go upscale when it's got such a lock on that lower-end market?

BARBARO: It absolutely does make sense for Wal-Mart to go into this business. And anyone would tell you that, and here's why: When you've got a lock on a market, you can't take it for granted. You've got to go someplace else. And Wal-Mart certainly has a lock on low-income consumers and really basic products. But they need to grow, like any company. And in order to grow, they have to go after a market they don't have. It's a market Target's done very well with, J.C. Penny's, Cole's, and they want a piece of it.

RYSSDAL: OK, so how long's it gonna take, do you think, for Wal-Mart to get it right?

BARBARO: It's gonna take longer than Wal-Mart thought it would, and it's gonna take longer than Wal-Mart's competitors thought it would. When Wal-Mart first decided it was gonna go upscale, everybody was freaked out. Now, they realize that they don't have as much to be worried about in the immediate future.

RYSSDAL: Obviously we've caught you on a cell phone. You're headed down, as a matter of fact, to Bentonville

for the Wal-Mart annual shareholder meeting Friday, right?

BARBARO: Friday morning, bright and early.

RYSSDAL: Well, how do you think that's gonna go? What do you think the response is going to be as this strategy comes up, really, for the first time at a shareholder meeting?

BARBARO: Well, I think a lot of people are looking for Wal-Mart to tell them how this upscale strategy is doing, and I think Wal-Mart will be very candid and say that it's a pretty mixed bag. And people are gonna look for an explanation of whether it makes sense to keep doing this, and at what pace Wal-Mart's gonna keep doing this. And people are also gonna look for some sort of solution to the problem — whether it means scaling it back, changing the clothing they have, changing the people who are doing the buying and maybe making other changes at the highest levels of the company. Because this has been a real black mark against Wal-Mart for the past six months or so.

RYSSDAL: Michael Barbaro from The New York Times. He's on his way down to Bentonville for the Wal-Mart meeting on Friday. Mr. Barbaro, thank you so much for your time.

BARBARO: Thanks for having me.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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