By Nicole Maestri - Analysis
SAN FRANCISCO (Reuters) - While Wall Street presses Wal-Mart Stores Inc for details on how it will keep its market share once the economy bounces back, the retailer might have provided one clue in the form of a label.
Last week, Wal-Mart announced plans to develop over the next five to 10 years a label that it could put on merchandise, indicating a product’s eco-friendliness.
The announcement was hailed as a game-changer that could speed the creation of sustainable products and help the retail industry create a global standard for assessing “green.”
But it could also be seen as a shrewd move by a retailer looking for ways to keep a wide moat between itself and its competitors once the economic downturn abates.
The idea might be ahead of its time for today’s shopper, who is mostly concerned with stretching a limited budget.
“But there’s a generation that’s coming up behind, and they care deeply about this,” Chief Merchandising Officer John Fleming said on a webcast announcing the labels. “This is the No. 1 issue on college campuses today, regardless of what happens with the economy, because they know this is their future.”
Those college kids could be tomorrow’s Wal-Mart shopper.
“Wal-Mart is very smart right now in looking at the future,” said Marshal Cohen, chief industry analyst at market research firm NPD Group. “They have to do everything they can from every direction, long and short term, in trying to find a way to sustain the momentum that they’ve been able to build during these challenging times.”
As an increasing number of shoppers head to its stores for cheap prices, Wal-Mart is gaining share. It now accounts for 11.3 percent of U.S. retail sales, excluding automobiles and gasoline, up from 10.4 percent earlier this year, said Craig Johnson, president of Customer Growth Partners.
But just two years ago, its sales growth was waning as shoppers, flush with cash from the housing boom, favored rivals like Target Corp for trendy wares and clean stores.
It also faced intense criticism from liberal Democrats and labor unions, who contended it paid poverty level wages and pushed employees onto government aid programs.
“They were the poster child of what to do wrong,” said Andrew Benett, Co-CEO of advertising firm Euro RSCG New York.
But Wal-Mart has worked to burnish its image. It has vowed to cut energy usage, reduce waste and offer lower-priced health care to employees. It has hired Leslie Dach, former vice chairman at Edelman public relations, to be its executive vice president of corporate affairs and government relations.
It is now upgrading its fleet of 3,500 U.S. stores, giving them a brighter look with wider aisles and lower shelves.
The resulting resurgence in its business has silenced many of its critics and put Wal-Mart in a position to take a leadership role in areas where it was once considered a laggard -- like the environment.
But its shares are down 12 percent this year, compared with a 22 percent rise for the S&P Retail Index, as investors fret it cannot keep the momentum when the economy improves.
Wal-Mart’s CEO Mike Duke has been adamant that the recession has changed spending habits, and newly frugal consumers will still shop in its stores when times get better.
But it is clear that Wal-Mart also has its sights on maintaining market share by winning over shoppers who may not yet even have a paycheck to spend in its stores.
“Since the beginning of modern retailing in the U.S. there has never been a retail brand that’s transitioned from one generation to the next,” Fleming said. “This is our opportunity to connect with the next generation.”
Buying green items has been put on the back burner by many consumers who are struggling to make ends meet and are unwilling to pay more for environmentally friendly goods.
“The green that they care about is the green in their pocket right now,” NPD’s Cohen said.
But by pushing suppliers to start work today on making greener products, by the time Wal-Mart is ready to put an eco-label on an item five to 10 years from now, the products could be commonplace. That could allow Wal-Mart to sell a plethora of green goods at low prices.
Retailers that win green shoppers may also find they have established a loyal customer base with research from Deloitte showing green shoppers buy more and shop more often than the typical shopper.
Cohen said that by pushing for eco-labels, Wal-Mart can position itself as a leader in the green movement, which will resonate with consumers when times improve or help shoppers feel better about the purchases they do make.
“Somebody’s going to do it, and they want to be the first,” he said. “It’s about beating out the competition.”
Reporting by Nicole Maestri; Editing by Richard Chang