Bentonville, Arkansas-based Wal-Mart, which makes three-quarters of its 400 billion sales at home, has lost customers among the lower-income earners in its core demographic, 68% of sales come from those with household incomes under US$70 000.
Drops and gains
Its reputation has been growing that it cannot be relied on to always offer the cheapest goods, says an internal document in Business Day's possession.
In the 12 months to May, Wal-Mart lost customers in all income groups to the $74 000-a-year level, while gaining them among people earning $75 000 and above, the document shows.
The biggest drop came in the $25 000-to-49 000 band.
That accounted for 37% of Wal-Mart US's shoppers in May last year, but dropped to 28% in May this year.
The average US salary in 2005 was $43 362 (R297 313), government figures show.
"We've lost relevance with the lower-income families," the document dated 16 September 2010 says, pointing out that core customers "struggle to make ends meet and see the world differently than the customer we've been focused on".
Lower prices for consumers are one of the key benefits Wal-Mart, in talks to buy local retailer Massmart, holds out for consumers in SA and elsewhere as it expands through Africa.
One of the attractions the US retailer has identified in SA is the under-served lower-end market.
The change gives reason to be concerned, says the South African Commercial Catering and Allied Workers Union, which is lobbying competition authorities to attach conditions such as making all casual Massmart staff full-time employees, if the R16.5 billion, 51%-stake sale is permitted.
"Most companies at the point of entry will try to please their customers, but after some time that changes.
"That's our experience," says Mduduzi Mbongwe, the union's deputy general secretary.
"Even this thing of them saying they will respect unions, they may do those things at point of entry, but at some point the picture changes, when the deal is approved by the competition."
But Absa Investments analyst Chris Gilmour says Wal-Mart's loss is more a result of the greater competition in the US discount market than a failure of Wal-Mart.
In addition, shoppers in the US expect lower prices more than their South African counterparts do and are less loyal to stores.
"In the US, there's a lot of competition in that discounter market, Wal-Mart, Target, a whole bunch.
"It's not like Wal-Mart are the only one offering cheap everyday low prices, whereas in SA we don't understand the idea of discounters.
"There's a degree of loyalty in SA not apparent in the US, because of that huge competition."
In the document, Wal-Mart identifies its core US customer as a young working family with an average household income of $20 000-50 000.
They are more likely to be mixed-race than all white. They tend to pay cash, use discount vouchers and shop around, but visit Wal-Mart more than once a week.
The document, titled Wal-Mart Core Customer, shows that these people shopped less at the company over the past year.
In the 12 months to May, the proportion of shoppers earning less than $25 000 slipped from 22% to 21%.
In the $25 000-49 000 band the fall was the greatest, from 37% to 38%, but there was also a decline in the 50 000-74 000 category, from 23% to 19%.
This has weakened performance. In the 13 weeks to October, Wal-Mart's same-store sales (at stores open 12 months or longer) fell 1.3% as customer traffic decreased and the average basket price fell "slightly" on the same period a year earlier.
Spokesman Kevin Gardner refers to comments US CEO Bill Simon made at Wal-Mart's third-quarter results presentation.
Going into the holiday season, the company was looking to tackle the perception that it was not the cheapest, he said.
"Our marketing efforts will be focused on bringing to life how our customers can rely on Wal-Mart to save them money so they can live better. Our holiday message is focused on basket savings," Simon has said.
Wal-Mart grew its business among wealthier customers. Among shoppers earning $75 000-99 000, the proportion rose to 13% from 9% and in the $100 000-plus category it jumped from 10% to 19%.
Source: Business Day
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