Can Wal-Mart Keep Its Middle Class Shoppers?

Before the recession, many people in my middle-class community in southern New Jersey thought they were too good to shop at the local Walmart. Some of these people changed their minds when times got tough and ended up patronizing the world's largest retailer. Recently though, Walmart's sales have faltered, suggesting that the store is having trouble hanging on to its new middle class customers and forcing the company to make some moves to keep them.

According to The Wall Street Journal, Wal-Mart Stores Inc. (WMT) "is cutting prices on thousands of products in an aggressive campaign to reinforce its reputation as a discount leader." The company was short on specifics about its plans, but executives told the paper the expanded price cuts will come through "help" from suppliers. That's a funny way to describe the "do it my way or the highway" Wal-Mart reportedly has with the companies who provide it with products. A Wal-Mart spokesperson could not immediately be reached for comment.

This represents a change in fortunes for Bentonville, Ark.-based Wal-Mart. It thrived during the height of the economic downturn as shoppers bypassed competitors in favor for the company's low prices. But consumer confidence, while low, is starting to rebound and the public's shopping habits may be starting to shift, says Nigel Gault, Chief U.S. Economist at IHS Global Insight.

"Price, on its own, is no longer driving [their] spending," he says.

Rivals Picking Up

Wal-Mart same-store sales have slipped this year as rivals including Kohl's (KSS), Bon-Ton Stores (BONT), Macy's (M) and J. C. Penney (JCP) have risen. March sales at Kohl's opened at least a year soared 22.5% compared to a year ago.

Kevin Mansell, Kohl's CEO, sounded an optimistic note in a press release. "Increasing customer traffic remains the driver of our sales performance as we continue to focus on gaining market share," he says.

Shares of Menomonee Falls, Wisconsin-based Kohl's have soared by almost 25% over the past year. Wal-Mart rose about 3%. Wal-Mart's main rival, Target Corp. (TGT), has soared more than 51%. Its March same-store sales gained 10.3%, exceeding the company's expectations. This leaves Wal-Mart with little choice but to do what it does best -- slash prices.

As the economy improves, Wal-Mart's biggest challenge will be to convince people who think they are too good to shop in its stores that its discounts are too good to pass up. The problem is that to many middle class consumers, "low prices" means "low quality." They only want to shop at the chain when that is all they can afford. When they are more financially secure, they leave Wal-Mart behind.