Why selling higher-end brands gives Walmart a fighting chance against Amazon
Since its creation, Walmart has been a discount retailer that serves middle- and lower-income consumers. Yet, the company’s future might depend on affluent consumers.
Walmart is spending big to attract affluent customers in an effort to capture market share from Amazon.
Walmart’s acquisition of Jet.com in September 2016 for $3.3 billion was its initial step to reach a more affluent demographic. Since then, the retail giant, known for its “every day low prices,” has been on a shopping spree, buying higher-end e-commerce platforms like Bonobos, ModCloth and Moosejaw.
Walmart has mostly used Jet.com as a channel to sell these higher-end brands, marketing it as a separate channel for a millennial, metropolitan audience. The company launched a new private-label business called Uniquely J on Oct. 20 to further serve those consumers with everyday essential yet premium products.
Walmart has also increasingly partnered with premium brands like Godiva and makeup brand Kiss to sell their items directly on walmart.com. One can find a box of 18 assorted candy bars for $11.84 on Walmart.com but also a six-pack of Godiva truffles for $32.58.
The recent reports that Walmart is close to a deal with Lord & Taylor on a designated spot for the department store to sell on walmart.com is even more of an indicator that Walmart is increasingly using the luxury industry to extend its reach. On Oct. 19, The Wall Street Journal described the approach as an effort to “turn Walmart.com from a discount shopping site to an online mall.”
All these moves are part of Walmart’s efforts to capture online market share from Amazon. Amazon’s e-commerce sales are estimated to grow 32 percent to $196.8 billion dollars by the end of 2017, according to eMarketer, accounting for nearly half of all online sales in the U.S. Comparatively, Walmart will sit at $11 billion in e-commerce sales at the end of 2017, according to eMarketer.
“It’s shaping up as the Godzilla versus King Kong battle of retailers,” said Jason Goldberg, svp of commerce and content at SapientRazorfish. “Walmart’s core shoppers are less affluent than Amazon’s core shoppers, so to grow, it’s important for [Walmart] to offer more premium products.”
Goldberg likens the approach to Target’s strategy 12 years ago when the brand worked to shed its cheap image for a more aspirational one. “You started to see Target upmarket luxury brands and informally get called ‘Targé.’” It was a shift to becoming a “surprise-and-delight brand,” said Goldberg. Consumers would be surprised to come in and find discounted premium products, a tactic that grew the Target brand, he added. At the time, Walmart was Target’s main competitor and took the opposite approach, focusing on reducing prices.
Now that Target is no longer as formidable a competitor, at least in comparison to Amazon, said Goldberg, Walmart can change its strategy. “Walmart is now looking at Amazon and saying, ‘OK, what [are] its weaknesses? Where can I win?’”
Attracting and retaining luxury brands is certainly one of Amazon’s weaknesses. Luxury brands have shied away from the platform, worried about ceding control to Amazon. “When a product shows up on Amazon and Amazon sees it discounted anywhere in the world, they drop the price down,” said Goldberg. “It quickly becomes this vicious spiral race to the bottom.”
Walmart has also struggled to maintain relationships with luxury brands. In June, angry Bonobos customers showed their disapproval of the Walmart acquisition by attacking Bonobos on Facebook and Reddit with sarcastic comments. Many believe the new acquisition might change or cheapen the Bonobos product. “How are you adjusting the fit options for the standard Walmart customer?” wrote one commenter on the brand’s Facebook page.
Traditionally, high-end brands and shopping outlets like Lord & Taylor wouldn’t conceive of selling their products through a discount outlet like Walmart for fear of brand erosion, but attitudes are changing with the degradation of department stores and the shift to online shopping. Lord & Taylor’s need for a new sales channel became clear a few days after the reports on the Walmart deal. On Oct. 24, the department store’s parent company, Hudson’s Bay, announced it would sell Lord & Taylor’s flagship store on Fifth Avenue in New York City.
Walmart isn’t the only e-commerce platform trying to attract affluent shoppers. On Oct. 9, JD.com, one of China’s largest retailers, announced the launch of Toplife, a shopping platform only for high-end global brands. “People with high incomes naturally tend to move more money online,” said Yory Wurmser, eMarketer analyst.
Mimi Chakravorti, executive director of strategy at Landor, said attracting more affluent consumers by partnering with the brands they prefer could be a fruitful strategy for Walmart. “It’s not just discounters or people looking for deals who are shopping online anymore,” she said.
So far, Walmart’s efforts seem to be paying off. Walmart’s e-commerce sales growth has improved significantly in the company’s last two quarters. At its annual investor meeting on Oct. 10, the company said it is forecasting 40 percent growth in the coming year in its U.S. e-commerce business.
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