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Wal-Mart turns attention to upscale shoppers

Wal-Mart Stores Inc. has overcome its rural roots and downscale image to attract affluent shoppers, but executives admit that many of those well-heeled consumers come only for cheap groceries and steer clear of the other merchandise.
/ Source: The Associated Press

Wal-Mart Stores Inc. has overcome its rural roots and downscale image to attract affluent shoppers, but executives admit that many of those well-heeled consumers come only for cheap groceries and steer clear of the other merchandise.

In its boldest effort yet to target upscale shoppers, the nation’s largest retailer is opening a new store this week with an expanded selection of high-end electronics, more fine jewelry, hundreds of types of wine ranging up to $500 a bottle, and even a sushi bar.

Wal-Mart says it won’t duplicate this format anywhere else. But if plasma TVs, microbrewery beer and fancy balsamic vinegar sell in Plano, those items could be added to stores in other affluent communities.

Retail experts say nearly half of American families shop at Wal-Mart at least once a week. They say the retail giant has nearly tapped out its middle-class base and must attract consumers who love Target and Costco but not Wal-Mart.

With about 3,700 U.S. stores, Wal-Mart has nearly saturated the market, and analysts say future growth depends on boosting sales by offering a better shopping experience. The company is renovating 1,800 stores as many of its older outlets have started looking a little tired.

Wal-Mart profits keep rising, but not as fast as Wall Street expects, and same-store sales, those at locations open at least a year, rose faster in 2005 at smaller but trendier Target Corp. Wal-Mart stock has slipped about 20 percent in the past two years while Target shares gained about the same percentage.

Analysts say that despite low prices, Wal-Mart suffers from a perception that its merchandise is lower quality, which turns off consumers who can afford better.

“The challenge they face is value, and upper-end consumers define value differently than a moderate-income shopper,” said Patricia Edwards, who helps manage retail funds for Wentworth, Hauser and Violich investment counselors. “If it was just price, they would drink the office coffee instead of going to Starbucks.”

In recent months, some Wal-Marts began selling upscale bed-and-bath items and its new Metro 7 and no boundaries clothing lines — all of which are highlighted in the new store.

Wal-Mart listened to focus groups of “selective shoppers” — the company’s term for affluent customers — in designing the store, said regional general manager John Murphy.

“The upscale customer is shopping our store,” Murphy said. “Are they interested in everything we have to offer? No. This is a test store. Can we make that leap to where they are interested in other parts of the store?”

Murphy said Wal-Mart hopes to prove it can reach affluent consumers, which should help persuade vendors who are reluctant to sell their goods there. Target has succeeded in selling designer lines.

Don Gher, an analyst with Coldstream Capital Management, said it took Target years to shift upscale and it won’t happen quickly at Wal-Mart either. In the meantime, he said the stores must guard against changing too much, which could alienate its core customers.

Gher predicted that Wal-Mart will succeed at selling high-end electronics to upscale consumers, but selling them apparel will be more difficult. “Fashion can be fickle,” he said.

The new store, which opens Wednesday, is 217,000 square feet, about 20,000 square feet bigger than the average Supercenter. It sits across the street from a SuperTarget, and you can see Costco from the parking lot. The blue and gray Wal-Mart exterior gave way to two-tone brick. Inside, wood floors and wide aisles abound. Shelves are lower to reduce clutter. Even employees look different in khaki pants and navy polo shirts instead of blue smocks.

The new store is just as notable for what’s missing. The store won’t sell guns. It has far less space devoted to lawn and garden, fishing, camping and automotive products.

“This customer is telling us they’re not doing it themselves,” said Ryan Lincks, the store’s project manager. “They don’t change their own oil.”

But the store has rows of high-definition televisions, several of them over $2,000, plus pricier bikes and even an expanded yoga section. It features an expanded baby clothes area, a cards and books section with cherry-finish wood racks and arching halogen gallery lights, and baggers at the checkout lines — a first for Wal-Mart.

Hungry shoppers will search in vain for McDonald’s. It has been replaced by an espresso bar with a sandwich menu and free wireless Internet service.

Cosmetics and pharmacy aren’t relegated to the far end of the store; they’re next to the food and wine because female customers in focus groups said they want it that way for convenience and speed. Apparel areas have their own cash registers and more discrete fitting rooms.

But no layaways.