Alison
By Allison Linn Senior writer
msnbc.com
updated 2/15/2007 6:46:33 PM ET 2007-02-15T23:46:33

Wal-Mart is already known for offering some of the biggest discounts around. Now it also wants to be known for showcasing those low-cost goods in a prettier setting.

The Bentonville, Ark.-based retailing giant is in the midst of an ambitious plan to spiff up a whopping 1,800 stores over an 18-month period. The project, which is scheduled to be completed by October, is in addition to another 322 full store remodels — slightly more than the typical 300 — that the company completed last year.

The move comes as the nation's biggest retailer is facing sluggish sales growth and other growing pains, prompting the need for change.

Wal-Mart said U.S. sales for the five weeks ended Feb. 2 grew 2.2 percent on a same-store basis, higher than the company's conservative estimates but still lackluster when compared to previous years.

In the December period, an all-important season for retailers, the company reported a meager 1.6 percent gain, while in November, same-store sales actually dipped slightly. Same-store sales, or sales open at least one year, are considered a crucial measure of chain-store health.

The company also is facing a significant criticism over its treatment of workers and other corporate practices and recently weathered a shakeup in its marketing department.

For much of its history, Wal-Mart thrived on the model of offering budget-conscious shoppers, often in rural areas, a huge selection of products at bargain-basement prices, with little thought to frills such as fancy floors or attractive dressing rooms.

But in recent years the company has expanded further into suburban and even urban markets and targeted more middle-income customers to fuel growth.

Retail consultant Howard Davidowitz said many of those coveted middle-income shoppers have been willing to come to Wal-Mart for bargains on staples like toilet paper or socks. But, turned off by things like cluttered aisles and outdated décor, they are unlikely to cross the aisle and consider buying a fancy jacket, piece of jewelry or set of sheets.

“What Wal-Mart has to do is sell those middle-income customers more,” he said.

Wal-Mart says its remodel strategy is aimed at getting customers to shop in other areas of the store they may have previously ignored.

Still, the retailer also takes great pains to note that its overall strategy is to remain a discounter — albeit one whose stores are tailored to better appeal to their surrounding demographic.

“This is not about moving Wal-Mart to go more upscale,” spokeswoman Melissa O’Brien said of the company’s broader strategy. “It’s about where Wal-Mart’s going to be a better store of the community for each community we serve.”

Davidowitz believes the company is right to undertake an ambitious remodel effort, noting that many of the stores appear rundown in comparison to competitors such as Target. Still, he expects it to be some time before the remodels pay off.

“They’ve got a lot to do,” he said. “I think at the end they’ll be better.”

O’Brien, the Wal-Mart spokeswoman, said it’s too early to say whether the remodels are providing a financial boost, but she said anecdotal evidence shows customers are responding well.

The first thing a visitor notices upon entering a fully remodeled giant Supercenter in Yakima, Wash., is the floor. The entryway carpeting, which can quickly grow dingy amidst heavy foot traffic, has been replaced by faux slate tiles, which match the other earth tones that have supplanted the grays, blues and reds more commonly associated with a Wal-Mart.

The discounter also has scaled back the cluttered, dated signs, instead relying mainly on big, simple posters to direct shoppers to different departments in the store, which is the size of more than four football fields. In many places, displays have been lowered, or walls and barriers removed completely, to allow people to see around the stores more easily and check out things like strollers or furniture.

The company also has widened some aisles to allow shoppers to pass through more easily.

Departments such as apparel and accessories now have faux hardwood floors, to better distinguish them from the parts of the store where people buy things like detergent. The dressing rooms have been given a substantial makeover, and even the shoe area has more seating and mirrors.

In the pharmacy, Wal-Mart has lowered counters and removed walls so people can see and interact with the pharmacist.

The electronics department also has been spiffed up, and now boasts a wall of higher-end televisions as part of the company’s effort to sell more electronic gear.

There are other, smaller changes as well. In stores such as Yakima that sell guns, the display case has been upgraded to a wood finish. Also, many restrooms have been given a touch-up.

Yakima is one of the 322 stores that underwent full remodels. In the 1,800 additional stores receiving a more modest facelift, O’Brien said the company is making similar changes in any or all of four areas: apparel, restrooms, electronics and home.

From the wood and metallic design touches to the occasional greenery, the intent is clear: Wal-Mart wants to be thought of as a pleasant place to shop, not just a massive warehouse for snapping up bargains. The question is whether the changes will be enough.

One big problem facing the company is that the remodels themselves are disturbing store operations and turning off some customers. A full remodel takes 10 to 13 weeks, while a partial upgrade can take two to four weeks.

“The end result is incredible, but the disruption during the process is also incredible,” said Kaye Young, senior vice president with consultant group Retail Forward, which provided customer feedback to Wal-Mart ahead of the remodel plans.

Young has been surprised by the noise level, temperature changes and disturbances that have included birds flying through some stores. Such unpleasantness may turn off a small percentage of shoppers permanently, she said, although most Wal-Mart shoppers stay loyal because of the low pricing.

O’Brien noted that Wal-Mart suspended remodeling efforts during the busy holiday season. She said she thinks customers have been understanding, especially once they see the results.

Young thinks the changes will help Wal-Mart, but she said the company also needs to do more than just improve the stores’ looks.

For example, she said the redesigned electronics department may lure in more people looking for big-ticket items like computers or wide-screen TVs. But those same shoppers may leave empty-handed if the company does not have knowledgeable staffers to help them pick out the right item.

Analyst Edward Weller with ThinkEquity Partners said he welcomes any upgrades that could make it easier to find things in Wal-Mart’s massive stores. Still, he thinks the company continues to fill up areas including the aisles with too much product, potentially putting off customers.

While Wal-Mart has made some effort to tailor its store offerings to meet the demands of higher-income areas, Weller thinks they could do more to differentiate its stores.

He also noted that Wal-Mart must go beyond just providing a more pleasing environment if it wants middle-income customers to purchase more items. The retailer also has to offer them more of the types of things they want to buy.

“It’s not just the remodels,” he said. “I think a lot of it is content.”

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