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Walmart Aims To Retain Affluent Shoppers With Newly Revamped Stores

Retail Giant’s Remodels Include Handful of Supercenters With ‘Dynamic’ Displays, Interactive Features

Photo Courtesy of Walmart.

Walmart wants to keep attracting higher-income shoppers — even when inflation wanes — with sleek remodeled stores that spotlight and display nongrocery merchandise such as apparel and home goods.

That's according to the CEO of the Bentonville, Arkansas-based chain, which remains the nation's biggest retailer by revenue and also has a growing share of U.S. grocery spending. And last year the discounter, which has 4,717 namesake U.S. stores, had a surge in business from middle- and higher-income shoppers who were pinching pennies on food purchases during that period of record inflation.

Walmart doesn't want to lose those more affluent patrons and is trying to coax them into also buying higher-margin discretionary items at its stores, CEO Doug McMillon told Wall Street analysts Tuesday during a fiscal fourth-quarter earnings call.

In part to continue to entice such shoppers, Walmart is in the process of remodeling hundreds of its U.S. stores, and in just a handful of them it has debuted a redesigned format that includes furniture and decor prominently displayed, and apparel being showcased on mannequins. The look is similar to the in-store design that one of Walmart's main brick-and-mortar rivals, Target, has adopted at its locations.

Walmart first tested the sleeker store design, which includes wider aisles and interactive corners, last year at its incubator store in Springdale, Arkansas, a Supercenter that's located near its headquarters. The retail giant has now launched the new format at its Supercenters in North Bergen and Teterboro in New Jersey; Quakertown, Pennsylvania; Yaphank, New York; and Hodgkins, Illinois. Walmart's store in Secaucus, New Jersey, was slated to be remodeled with the new format this month, according to CNBC.

Walmart didn't immediately respond to an email Tuesday asking about the status of the Secaucus upgrade or how many more of the sleek-format remodelings are planned for the rest of the year.

December was the largest sales month in the history of Walmart's U.S. stores, and like other discounters, such as the dollar-store chains, it has drawn shoppers with higher incomes than it usually attracts. But officials at Walmart, considered a bellwether for the retail industry because of its size, said they expect inflationary challenges to continue this year and offered a cautious financial outlook.

Walmart's U.S. comparable store sales rose 8.3% for the quarter ending Jan. 31, including 17% growth in e-commerce, in part because of higher pricing due in part to inflation and in part because of share gains. Sam's Club U.S. delivered its 12th consecutive quarter of double-digit comparable sales, with growth of 12.6%, excluding fuel and tobacco.

"We're gaining share across income cohorts, including at the higher end, which made up nearly half of the gains we saw in the U.S.," McMillon said of the quarter.

"As we plan this new fiscal year, we’ve anticipated stubborn inflation, in dry grocery and consumables in particular, will have some mixed impact," the CEO said. "We’ll stay focused on general merchandise, and earn sales in those categories to offset that impact as much as possible. When we think about our business today compared to what it was during the prior economic downturns we now have a more compelling offer, a true omnichannel experience that makes us optimistic that more higher-income families will continue shopping with us across categories because we have pickup, delivery and membership."

On the call, McMillon told analysts the company is “improving in categories like apparel and home. Our recently remodeled U.S. stores have a focus in those areas and the early response from customers is promising. We are also improving our e-commerce assortment and presentation in those categories.”

Sam's Club, which is in an expansion mode and now has 600 locations, is also "capturing a greater share of wallet" with both mid- and higher-income shoppers, according to McMillon.

"Our goal is for the experience they’re having in our stores and clubs — combined with our current capabilities for pickup, delivery and membership — to result in them choosing us even as inflation eventually subsides," he said.

Neil Saunders, managing director of GlobalData, in a note to clients Tuesday discussed Walmart's need to retain higher-income customers.

"Unfortunately, there is not so much that Walmart can do about weaker demand among its core shoppers," Saunders said. "However, to convert more middle- and higher-income segments it needs to improve both its assortments and the way it presents them in store. The problem with Walmart in general merchandise is that it acts and thinks like a grocery player — merchandising in a very functional fashion with little to no flair. This is not enticing or appealing to many shoppers and makes assortments seem uninteresting, which reduces conversion and purchasing rates."

Walmart seems to recognize this, "which is why it is committed to improving store environments," according to Saunders.

"To date, it has rolled out a handful of remodeled stores, including its North Bergen Supercenter in New Jersey," he said. "These refreshed shops elevate visual merchandising and are encouraging shoppers to browse for longer and have a positive impact on sales. However, Walmart needs to commit to rolling out this remodel much further in the year ahead if it is to gain serious traction in general merchandise. This may be difficult to justify in the present sluggish environment, but we also see it as a critical element of long-term success — including attracting more younger shoppers."

Walmart announced its plans to test the new store format in Arkansas in January 2022. Alvis Washington, Walmart vice president of marketing store design, innovation and experience, called the new concept "Time Well Spent,” with a focus on making Walmart a destination where customers want to spend their time.

"We’re using powerful design elements to show off amazing products that wow our customers, and when they see the value, they are proud of their choice and purchase," Washington said in a blog post. "We’re amplifying the physical, human and digital design elements in our stores to inspire customers and elevate the experience. Physical elements include lighting, space enhancements, dynamic displays and more. Our visual merchandising experts have highlighted exciting brands and created engaging experiences that bring to life the human element."

That included letting shoppers interact with merchandise.

"Home may feature a living room or bedroom set up where the customer can squeeze a throw pillow or feel the coziness of a blanket, then find those items on-site to purchase and take home, or order them online," Washington said. "New parents will not want for inspiration when they visit the baby department. They will be greeted by elevated displays showcasing all the items needed to create a dream nursery as well as strollers and car seats that are brought out of the box to allow for test drives."

Walmart completed its traditional remodels of 200 stores in the fourth quarter, for a total of 700 completed in fiscal 2023.

Source: 2023 CoStar News.

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