The giant retailer’s chief merchandising officer explains why and how it is trying to reach a wider range of consumers than it has in the past.
To hear senior marketer John Fleming tell it, Wal-Mart Stores’ marketing mission is pretty similar to that of other retailers: to improve the in-store connection with customers. The level of complexity, though, increases dramatically for a company with roughly $350 billion in sales and 6,000 stores around the world.Fleming has a unique perspective on connecting with Wal-Mart’s customers, thanks to his past roles as president and CEO of Walmart.com and as Wal-Mart’s chief marketing officer and to his current one as the company’s chief merchandising officer. In this interview with McKinsey’s David Court, Fleming explains how marketers at retailers can make the greatest impact: “Think like marketers,” who use data to make decisions, “but act like merchants,” who react rapidly to market changes.
Like many companies, Wal-Mart grapples with the fragmentation of customer needs. A key implication, says Fleming, is that it must segment its customers more finely than it has in the past and develop a variety of different in-store experiences. That creates execution challenges and makes managing Wal-Mart’s brand more complex.
Fleming also discusses the current role of Walmart.com, which is not only a distribution channel but also a powerful marketing vehicle. And he describes the importance for Wal-Mart of having marketers with diverse backgrounds ranging from packaged goods to manufacturing, advertising, and retail. Integrating such talents and experiences isn’t easy, but it’s the only way, in Fleming’s view, to operate in “basically every business known to retail” and to satisfy customers whose needs are becoming more diverse.
The Quarterly: How are changes in today’s marketing environment—the proliferation of market segments, distribution channels, media—affecting Wal-Mart?
John Fleming: Obviously, things are moving at a fast pace and have been for some time. The Internet supercharged proliferation. But we were slow to embrace the proliferation that was happening because we were able, for so long, just to deal with customers who had very little money. We had a great value proposition for them.
Today we have an opportunity to connect with many different customer segments. Eighty-four percent of all US households now shop at Wal-Mart, and almost everybody who comes into our stores will consider us for basic branded, nonperishable commodities. Yet as you look at different categories, the numbers go from 100 percent consideration to 90, 80, 70, 60, or less. In some stores we have products that only 20 percent of the customers coming through the door will even consider. The experience and the assortment that a segment of Caucasians in rural America is looking for is different than it is for a Hispanic segment. Another example could be a multicultural urban segment that takes mass transportation to our stores and has different needs in terms of beauty products, entertainment, or food.
That’s what we’ve been working on: boiling our customer base down to between five and seven segments and then lining up each store with a primary segment. What we’re focused on is getting the insights to identify, for each one of these segments, how the product offering it wants differs from our baseline. To really connect with those segments, marketing needs to aggregate research and customer insights—whether they come from suppliers, from other third parties, or internally.
The Quarterly: You’ve been quoted in the business press talking about the selective Wal-Mart customer who may be slightly different from the historic Wal-Mart customer. Can you describe that in more detail?
John Fleming: When I became chief marketing officer, in May of 2005, the first thing I tried to do was take a very basic look at how people shop with us. The loyalist, we found, shops with us frequently and shops in multiple categories. The selective shopper also shops frequently, but in a narrower range of categories. The skeptic is both infrequent and not in many categories.
The selective shopper is time starved. Time is their currency. They want solutions, not just items. For example, something like 85 percent of selective shoppers don’t even know what they’re having for dinner an hour before they have dinner. And you know what? We have a lot of people in our stores at that time, so we need to be able to present meal solutions. That’s a big change for us because we’ve built our business selling items.
Our Plano, Texas, store is a good example of the kind of customer experience that’s necessary for selective shoppers. We did put a couple of things in there differently, such as expanding wine pretty dramatically. But in the end there were only 3,200 SKUs1 that were different from our base program. The primary driver of the results, which are very good, is the customer experience. We eliminated almost 10,000 SKUs so we could be more focused and have a clearer merchandise presentation. We think we can do the same thing with a number of different segments and, in doing so, probably reduce the amount of inventory we carry today, when we are trying to meet all segments’ needs in every store.
The Quarterly: What were the key aspects of the customer experience that you changed at the more upscale Plano store?
John Fleming: We asked ourselves, “What’s the next store coming off the line that will serve the selective demographic of typically higher- and dual-income, time-starved people?” We identified Plano, and in July of 2005 we took a quick pass at what is most important to the selective shopper. It’s about convenience. It’s about solutions. It’s about value more than just price.
We knew we needed to change the experience pretty dramatically. One thing we focused on was “adjacencies.” Typically, in our largest stores—our Supercenters—we put our pharmacy and health and beauty accessories over in the general-merchandise side of the store. Dry groceries and food are on the other side, pretty far away. The first time I shopped at a Supercenter, I was struck by the fact that I went in for groceries and then, on the way out, was thinking, “I need some soap. Yet it’s way on the other side of the store, and I’m not going across all those aisles!” So I was out of there. I admit I had never really shopped at a Wal-Mart Supercenter until I moved to Arkansas, because prior to that I spent 20 years in Minneapolis and 5 years in San Francisco, and there aren’t a lot of Supercenters in either city.
So anecdotally, I knew there was a need to pull these together. We also thought it was important for the time-starved customer to be able to navigate through the store very quickly. One of the biggest problems with our navigation system is the amount of inventory we carry. So we took out all the risers, which are the shelves that go up above the main shelves and are used for stacking additional merchandise that nobody can get at. In doing so, we were able to open stores up, improve the sight lines, and create a new navigation system to help customers get through the store more quickly.
The Quarterly: What do you worry about most as you move forward in an environment where you might have five or six different customer segments and types of stores?
John Fleming: One issue is that most of our systems were built to optimize the supply chain, not necessarily to maximize the customer experience. So there are some operational barriers we have to work through. But I worry most about the in-store execution. It’s one thing to say, “We’ve got six segments. We understand the assortment. We understand the occasions. We understand the experience. We understand the competitive set.” And it’s another thing to really make that work operationally at the store level.
I’ve already heard anecdotal examples of markets that have no Hispanic population but have stores with 80 percent of their business from Hispanics: workers who come into the community but don’t live nearby. Here in Arkansas, we typically profile all the stores that are within ten miles of the home office as the same because they’re in northwest Arkansas. Store number one—the very first Wal-Mart store, about seven miles from here—is a Hispanic store that never gets treated as a Hispanic store, because the data we use say that only 18 percent of the population is Hispanic in northwest Arkansas. Five miles away is the new South Rogers store, which should be a higher-income store because anybody who’s at a higher-income level in this area shops at that store. Yet it doesn’t necessarily get treated that way, because the average income of this area is in the $47,000 to $48,000 range.
Examples like these mean that a tremendous amount of responsibility is going to come down to the field. The idea is that we need to give information about what needs to happen in what store to a market manager who has ten stores. And the market manager needs to validate that data.
The Quarterly: How will you manage your brand as you move toward a more segmented business approach?
John Fleming: We’re on a journey. The first step is just about discipline and consistency in how we manage the brand. Even today, when the engine that drives the machine is the 200,000-square-foot Supercenter, we don’t have consistency. A couple of years ago, everybody—at every store and in the home office—thought that they managed the brand one customer at a time. Because buyers had the ability to get any kind of packaging they wanted with any kind of signage from suppliers, our stores looked like a city with no zoning. Furthermore, the signs in the stores were different from the circulars, which didn’t necessarily look like the television advertising. So we moved a lot of the brand decision making toward a more centralized function and developed guidelines and processes to ensure consistency.
At the same time, we are spending a lot of time doing research around the brand so we can better articulate where we want to take it. The brand has always stood for low prices, broad assortments, and trust. Over time, we need to evolve it to being a broader value proposition that takes into account products and experiences that are relevant to the segment we’re targeting in any given location.
The Plano store taught us that the brand is probably more elastic than we thought. I was worried about taking a 200,000-square-foot Supercenter and being able to present it in a way that was relevant to customers who had significantly higher incomes than our core customers. That doesn’t seem to be a barrier. I think we are able to develop a kind of consistency, by segment, that is relevant to that segment. At some point, we may be looking at other formats, and we may need different banners once we start changing the physical store. There too it will be about consistency and relevance to the segments.
The Quarterly: Wal-Mart has always been a major user of television and, through your circulars, of newspapers. As the audiences for these traditional media decline, do you expect to evolve your marketing mix?
John Fleming: Yes, we’re evolving. In 2005 our media mix was really three things: it was broadcast TV, it was monthly circulars, and it was the in-store signage. That was about 97 percent of our advertising budget and of how we communicated with customers. The next year was a big transition year, with a lot of learning. We placed some bets and tested a lot of different things—some direct mail, a lot of Internet advertising, developing analytics to measure results.
But the most significant change is in the look and feel of the stores, which are actually the most important media channel we have, with 130 million customers every week going through them. We have undertaken a 1,800-store remodel to get the adjacencies right so that, for example, all home products are pulled together and apparel is presented in a way that is conducive to actually selling apparel, as opposed to just getting product on the floor. Then, as we better understand the segmentation by store, there are different tools we can deploy, such as Wal-Mart TV, to present relevant solutions to customers at times when they’re considering a need.
The Quarterly: Our readers may not be familiar with Wal-Mart TV, the in-store television network where Wal-Mart itself, as well as vendors, advertise and promote products. Could you say a little more about how you are using Wal-Mart TV and whether you have any plans to change it?
John Fleming: When I became chief marketing officer, I was concerned about Wal-Mart TV because of its placement and because I thought it would just contribute a lot more messaging to stores that were already noisy. One of the things I had learned online is that presenting information is all about context. For example, when we started Walmart.com, we knew the Internet would be a place where customers went for information. So we created all these buying guides that would help to simplify complex purchases, from diamonds to electronics. We put the guides on the home page, and nobody looked at them. When we moved them to item pages, where customers had already reached the point of consideration, suddenly customers wanted the information.
I think of Wal-Mart TV in the same way. If we put TVs throughout the stores in locations that, like the home page, are heavily trafficked, then we’re just pushing a lot of content on customers who aren’t ready for it. But with technology moving in the direction that it is, we can really target the message and use the programming in much the same way we’ve used buying guides online to help customers make better decisions. We’re moving from big analog boxes that hang above your head to small LCD screens that can be placed at the point where the customer is making the decision. So the content in the food area is about meal solutions; the content in the apparel area is about how you put together new fashions to create a head-to-toe look.
The Quarterly: Let’s talk a bit more about Walmart.com. You have this rapidly growing dot-com business, as well as the largest store-based business in the United States. How do the two organizations work together?
John Fleming: Walmart.com was set up in 2000. During that time, there was a thought that the Internet was going to take over retail—bricks and mortar were dinosaurs. Walmart.com was set up as a separate company, with outside investors and with Wal-Mart owning a majority. The idea was that Walmart.com was going to tap into customers Wal-Mart didn’t have and, in doing so, would defend our position as the world’s largest retailer.
We saw very quickly that this wasn’t how customers viewed the online channel. Within six months, Wal-Mart bought back the outside interest. Since that time, our value proposition at Walmart.com has been about providing Wal-Mart customers with access to more of Wal-Mart—creating Web applications that are easy to use and giving customers access to things they can’t get in a physical store.
The interesting thing is how my view of Walmart.com changed over time. Initially, I saw it as a commerce vehicle, but it’s actually more valuable to Wal-Mart as a marketing channel. We have about 20 million customers who shop at Walmart.com, and 94 percent of those customers also shop at Wal-Mart once a month. These are Wal-Mart shoppers who are looking beyond the store for things that the online channel can provide—whether it’s information, additional services, or assortments. We carry over 1.2 million SKUs online, as opposed to an average of 130,000 SKUs in stores. And online, we can also see the things consumers are looking for that we don’t carry. So whereas we used to see Walmart.com as just another channel, now we see it as a complement to the stores and to the Wal-Mart brand.
The Quarterly: Now that you’re the chief merchandising officer, how do you think about the relationship between marketing and merchandising?
John Fleming: When I was chief marketing officer and went out on the circuit, the title of my talk was generally, “Think like marketers but act like merchants.” Marketers are very strategic; they use a lot of data to make decisions and are very focused on customers. Merchants are intuitive and will make fast decisions, without a lot of information, in response to changes in the marketplace. One of the frustrations early on for me as I brought in a lot of well-trained marketing people was that they were very focused on a year from now. But in retail we’re focused on next weekend. So we came up with the phrase “code blue,” which meant, “We have to do it tomorrow. Stop everything you’re doing and respond.” That’s not, typically, the way most marketers operate.
The Quarterly: What were your priorities as you were building your marketing team?
John Fleming: On the marketing strategy and customer insights side of the organization, we looked for people with a lot of packaged-goods experience. That’s classic marketing, with a lot of great discipline. Then, as we got into marketing communications, we were looking for more creative profiles: people with advertising agency experience, people from retail—even manufacturing. Overall, I was looking for diversity of thought.
The other day, I was telling someone about a book about the store where I previously worked—Marshall Field’s. The title was Give the Lady What She Wants.2 That’s still what retail is all about, and I think it also speaks to the broad range of skills we need at Wal-Mart. We have around $350 billion in sales, a couple of big channels, 130,000 SKUs per store—and we’re building 300 stores per year. To focus effectively on discrete segments in basically every business known to retail, we need a wide variety of skills in different marketing fields.
https://www.mckinseyquarterly.com/Marketing/Strategy/Confronting_proliferation__in_retail_An_interview_with_Wal-Marts_John_Fleming_2022
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