Walmart recently announced their intention to focus on millennials in the apparel category at the Raymond James 37th institutional investors’ conference. With 4500 stores across the U.S. (accessible within 10 minutes of 90 percent of the population) and a growing online business, soon to be accelerated by its acquisition of Jet.com, Walmart declared that their apparel strategy, “Shocking Value,” would have rock-bottom pricing that cannot be replicated.
Well, my first reaction was that if one were to pair millennials with rock bottom pricing for apparel, Primark would come to mind. This stylish brand opened its first store in Boston with plans to roll out across the U.S. Essentially, the three cornerstones of this Ireland-based retailer’s strategy (with 300 stores across Europe and doing $800 a square foot), is to provide 1., an exciting, fun, modern and upscale shopping experience; 2., trendy merchandise, delivering new fashions almost daily (fast fashion); and 3., the lowest prices. OK! Got it. All of this, of course, has millennial mindset written all over it. And my visit to the Boston store was my enthusiastic ingestion of Primark Kool-Aid. It was jam-packed with millennials and the store was hitting the ball out of the park on all three points.
So whatever “rock bottom pricing” means to Walmart, and even if they achieve it, I find it difficult to imagine Walmart replicating the shopping experience and trendy, fast fashion apparel offered by Primark.
But hold your horses. When Walmart speaks, people listen. First of all, counter-intuitive to the assumptions about Walmart’s typical shopper, Steve Bratspies, U.S. CMO, said in a Forbes.com article, “Two-thirds of Americans between the ages of 20 and 35 have shopped at Walmart in the last month.” He went on to say that millennials are more likely to shop at Walmart than Americans of any other age group. In fact, a report by InfoScout found that Walmart ranks as the preferred place to shop for millennials 24 and younger.
Bratspies also pointed out in a WWD article that nearly half of those millennials — 48 percent, versus 28 percent of Baby Boomers — are multicultural. “Millennials are the most value-driven generation,” Bratspies said. “And busy millennials are demanding a new level of convenience.” So Walmart is focusing on creating a seamless shopping experience across the enterprise, both online and off. Not so coincidentally, Walmart’s share of millennial moms increased by 450 basis points in the last two years.
A Tale of Two Millennials
On the other hand, it doesn’t take a rocket scientist to determine that Primark is a destination for more upscale, urban, college-educated millennials seeking trendy, fashion-right apparel in an exciting, fun, tech-friendly shopping environment – offering rock bottom prices. Walmart is a destination for lower income, non-college educated millennials (and increasingly moms), seeking rock-bottom prices on basic and need-fulfilling merchandise across multiple categories. Groceries is one the most compelling, categories and accounts for about 55 percent of Walmart’s total revenues. In fact, the same InfoScout report stated that millennials favored Walmart over Target, Kroger, Whole Foods, Trader Joe’s and Costco. Grocery is a substantial draw, especially for millennial families, and it leads to higher visitation rates. So while they are captive shopping for groceries in the store, they can be exposed to other categories. And apparel would be one of those, currently driving only about 8 percent of sales.
In essence, Walmart has the opportunity to capitalize on a one-stop shopping destination for this time and income challenged cohort. Bratspies said, “They definitely subscribe to the idea of one-stop shopping. Our low-price model and budget approach to shopping work very well for them.” So, following the data logic, Walmart might position millennial apparel within spitting distance of the baby food aisle. Hey, Barnes & Noble is racking beauty walls near textbooks on college campuses. It’s all about synergy. And with the acquisition of Jet.com, it’s likely that some pretty cool brands will start appearing via Walmart.
Back to the “Shocking Value” Apparel Strategy
To get to the rock bottom in pricing, Bratspies said, “We have aggressive plans around order fill rates, greater efficiency at the shelf, improving speed and creating a lot more customized programs at the local level. We’re looking at how we source products globally.” They are also going to increase their private branding program, which provides differentiation, loyalty, higher visitation rates and ultimately profitability. Private brands also give the consumer a value comparison when compared to national brands in adjacent spaces. Walmart is also building a world-class product development lab at its home base in Bentonville, Arkansas.
Furthermore, since they are arguably the volume leader in all of their categories, they have tremendous leverage over their wholesale vendors to find cost savings, which Walmart passes on to the consumer. Lastly, in conjunction with their vendors, they will eliminate co-op marketing and request that the vendors put it into the cost of goods, as another tool for lowering prices.
The Jet.com Factor
Enter stage left with another tool for getting to rock bottom pricing is Walmart’s acquisition of Jet.com. Because of its proprietary pricing software and its formula that rewards customers in real time with savings on items that are bought and shipped together, it thereby reduces the supply chain and logistics costs often buried in the price of goods. It takes costs out and brings prices down. In Walmart’s quest for crushing Amazon, the ability to underprice the e-commerce leader becomes a major competitive advantage.
Additive to the “shocking value” strategy aimed at millennials is Jet’s growing customer base of urban and millennial customers with more than 400,000 new shoppers added monthly and an average of 25,000 daily processed orders. Jet also has over 2400 retail and brand partners and they had over $1 billion in sales in the first year of business.
Like all retailers who sell online and off are discovering, Walmart’s best customers are those who shop both. Walmart’s customers who only shop in store spend about $1,400 a year and the online-only shoppers spend $200. Those who shop both spend about $2,500 per year.
Amazon and Primark
Amazon certainly understands the synergy of omnichannel retailing and therefore, is testing stores. Primark, on the other hand, has declared they will only sell through physical stores, due to the fact that they can drive lower prices if they don’t take on the huge investment and the costs of running an online business.
One might ask why I keep bringing Primark into Walmart’s and even Amazon’s space when it comes to millennials and apparel. Amazon is a no-brainer. And, as I have stated, the combo of Walmart and Jet.com, has the potential of crushing Amazon.
Regarding Primark, while I do believe they cater to up-market millennials and therefore are currently not in Walmart’s competitive set, as Jet.com continues to grow in urban areas among millennials, is it not logical to speculate that Jet.com could eventually open stores stocked with trendy fast fashion-like apparel, in a modern, tech-enabled, exciting shopping environment?
I suggest Primark keep an eye on what Walmart and Jet.com are up to. At the very least, they can be a serious millennial contender in the urban locations Primark is undoubtedly looking into.
Most retail experts are likely scratching their heads and declaring me crazy for even putting trendy apparel and up-market millennials in the same sentence with Walmart.
Well, I’ve made crazier speculations. Walmart’s slogan: Save money. Live better. Under Walmart’s current leadership, they mean what they say.
Expect big things.