June 8, 2005

How Should Wal-Mart Go Upscale?

Daniel Gross has a truly pathetic piece about Wal-Mart in the latest Slate. As Kevin noted earlier [see the first link here], Wal-Mart is considering moving upscale, to some extent.

First, Gross is skeptical:

The problem is trying to get people to buy the good stuff from a place associated with the bad stuff.

... Retailers can drop from the luxury market to the mass market. (See, for example, the cheaper Jaguar X-types and the more expensive XK models.) But it's not clear they can do the reverse and move from low-end to high-end. What if Hyundai were to unveil a $50,000 luxury SUV? It would have difficulty getting its existing customers to trade up.


This is just plain ignorant. Honda started as a small-engine company, making small motorcycles long before they entered the U.S. auto market. Toyota initially was a small, economy car company, but look at their high end now. And, in fact, Hyundai is bringing out a luxury sedan [thanks to Kevin for this link]. He even cites McDonald's, but remember 40 years ago when all they offered was a basic 15-cent burger and contrast that with the McDonald's menu today. In other words, upscaling is successfully done often.

Then he gives some really useless advice:

(1) Make an intense study of Restoration Hardware's inventory management. Rather than pile up cheap goods to the ceilings, Restoration tastefully sprinkles expensive tchotchkes around even-more-expensive leather chairs.
Maybe, but I doubt it; this strategy seems to work for small, niche-market shops, but it probably contributed to the demise of old-time department stores. If you come to depend on high-margin junk, you're dead when Wal-Mart or similar stores begin selling it at low prices.

Even worse is this:

(2) Dispatch teams of anthropologists to Southampton, N.Y., in August to watch folks strolling up and down Main Street. Convene focus groups to plumb the psychology of customers, who, already possessing 200 pairs of shoes, are willing to spend their ancestors' hard-earned cash on four more pairs at Saks. (To get people to show for the groups, forgo the usual $50 plus punch and cookies. Offer Botox and vitamin-spiked water instead.)

Arrgghhh.... anthropologists?? in teams??? as marketing specialists??

I love reading about and studying anthropology; it has much in common with the new institutional economics. But I'd be careful about relying on them for marketing advice.

(3) Establish greeter re-education camps. The handshake, the smile, and the friendly welcome may go over big in rural North Carolina, but upscale customers like to be ignored, mistreated, and discouraged. For a hefty fee, trainers from Barneys and Bergdorf-Goodman will teach Wal-Mart greeters to instantly recognize A-listers and to identify the telltale signs of big spenders (seventysomething men accompanied by twentysomething blondes) and of tourists who will look but not buy (Gap bags).

What exactly is he trying to say? That the Wal-Mart greeters should be rude to attract upscale business? Maybe in some instances, but most of the time this is just plain wrong (except for those snobs who are ashamed to be seen in Wal-Mart).

One thing Wal-Mart does very well is sell known-quality, brand-name products at low prices. There is no reason they cannot do this for mid-scale and up-scale merchandise along with the merchandise they already carry.

My advice if Wal-Mart wants to attract more upscale customers is two-fold:

1. Ignore Daniel Gross, and
2. Try to get rid of the plastic-rubbery-chemical-type smell in the stores.

Posted by TheEclecticEconoclast on June, 8 2005 at 06:04 PM