Weak economy may be Wal-Mart’s strong suit

Image: Wal-Mart; Kelli, Mark Beaver
Kelli and Mark Beaver load their purchases into the back of their minivan at a Wal-Mart Supercenter in Mechanicsburg, Pa. Wal-Mart has benefited from the weak economy.Carolyn Kaster / AP

There was a time when Betsy Baker would have been embarrassed to be seen shopping at Wal-Mart.

But that was a few years ago, before the price of gold shot up and the economy slowed, all but ruining her family jewelry business. And it was before her monthly house payments skyrocketed to $3,800 a month from $1,800, and she found herself trying to get rid of a house that is worth substantially less than she paid for it. It was before her family conceded that they could not escape their economic woes without filing for bankruptcy.

“We just got walloped, and you know, it’s — you get past the point of embarrassment, you get past the point of shame, and you go into, like, survival mode,” Baker said. “You have to pay for the necessities: It’s cars, it’s lights, it’s water, it’s groceries for your family. It’s gas.”

It’s also a switch to shopping at Wal-Mart. These days, Baker, who lives in Bradenton, Fla., goes to Wal-Mart at least once a week to stock up on snacks, frozen pizzas and other household staples. Whereas before she would have been embarrassed to give a gift with a Wal-Mart tag on it, now she regularly buys things for her new granddaughter there. Her teenage daughter, who until recently was appalled at the idea of shopping at Wal-Mart, now brags to her friends about scoring a pair of shorts there for just $7.

“I think Wal-Mart has changed, and truly I have changed, too,” said Baker, 47.

A year ago, Wal-Mart seemed to be mired in a world of woes. The discounter’s sales growth was anemic and its share price was slumping. Its two big nemeses, WakeUpWalMart.com and Wal-Mart Watch, two union-backed campaigns critical of Wal-Mart’s labor practices, regularly lambasted the retailer for its wages, benefits and treatment of workers. An attempt to appeal to more affluent shoppers had backfired badly, leaving the company’s apparel and other departments struggling. The company had been forced to scale back growth plans.

Then came a triple whammy for American consumers: an economic downturn, rising gas and food prices and a deep housing slump. While other retailers have suffered from those woes, Wal-Mart has benefited, drawing in shoppers who previously spurned the retailer and retaining the business of those who say they dislike shopping there. Wal-Mart’s share price is up and its same-store sales, a key measure of a retailer’s health, have improved.

Simply put, a weak economy may turn out to be Wal-Mart’s strong suit.

‘Dollar for dollar, it’s just cheaper’
When Wal-Mart announced plans to move into Cindy Parker’s town of Dunkirk, Md., community members held meetings and circulated petitions to try to block the megaretailer from planting its stakes. Parker, 40, vowed not to shop there.

“I said, ‘I will protest with my pocketbook,’ but I did not,” Parker said recently.

Instead, Parker found out that she was expecting a third child, prompting her to stop working just as prices for everything from milk to gasoline started rising. Now she regularly stops at Wal-Mart for cereal, Gatorade, diapers, formula, baby food and even a bathing suit.

“Dollar for dollar, it’s just cheaper at Wal-Mart,” she said.

Parker had watched a movie about Wal-Mart’s business practices, and she admits having mixed emotions about supporting the company. But, she said, “At times like this you’ve got to take care of yourself.”

Still, Parker said there are things she wouldn’t buy at Wal-Mart, such as regular clothes for herself for her husband. She also has found that certain items, such as trash bags, are low in quality.

Wal-Mart spokeswoman Melissa O’Brien said the Bentonville, Ark.-based retailer has “absolutely” benefited from the fact that more Americans need to pinch pennies. But she thinks the company’s efforts to make shopping there more appealing — including extensively remodeling stores, working to improve customer service and revamping the product mix — also have helped keep them coming back.

Wal-Mart, which reports June sales this Thursday, also has worked to make its image more modern. It has almost completely done away with the bright smiley-face that once defined its brand and even announced plans to modify its logo. The simpler logo, which spells the company name "Walmart" without a hyphen and features a sun design, is being rolled out in U.S. stores and ads.

The company also has undertaken a major effort to improve its reputation, countering attacks over its wages and benefits and working to make its business more environmentally sustainable.

That’s paying off with shoppers like Chris Sorah. The 39-year-old Mount Carmel, Tenn., resident says he shops at Wal-Mart more now because he’s been impressed with the retailer's efforts to use more environmentally friendly materials and he likes that the company has made it easy and affordable for him to buy green cleaning products and other items.

The challenge for Wal-Mart will be to keep the newer customers loyal even if the economy improves. Company executives are optimistic.

“We believe that customers will continue to shop at Wal-Mart,” said David Tovar, another Wal-Mart spokesman.

But there are signs that the discounter still faces an uphill battle.

A recent Harris Interactive survey showed a statistically significant drop in people’s perception of Wal-Mart’s reputation between its 2006 and 2007 surveys. The score of 64.95 means “you’ve probably got some real serious red flags in a number of the attributes,” said Robert Fronk, Harris Interactive’s reputation strategist.

Indeed, some shoppers continue to have the same complaints that have dogged the company for years.

Teresa Behal shops at Wal-Mart to save money, but that doesn’t mean the 49-year-old Durant, Iowa, resident likes it. With such a large store, she said it can seem like a workout to get from the shampoo aisle to the milk case. Behal often is disappointed in the quality of the produce, and she says it can take too long to check out. She also sometimes thinks she’s not getting as good of a bargain as one might expect.

“It’s not a fun experience,” said another shopper, Amy Knight, 42.

Knight, who lives in Tampa, Fla., used to avoid Wal-Mart because she doesn’t like how the company treats its workers and doesn’t think the company is involved enough in local communities. She also dislikes how crowded the stores are.

Recently, however, the moving business she runs with her husband has been hurt by the housing downturn combined with high gas prices. That’s left the mother of four with less money to spend on necessities, and now she is a regular Wal-Mart shopper. Still, she’s hoping it won’t be forever.

“Honestly, as soon as I can afford not to shop at Wal-Mart, I will,” she said.

‘You shop at Wal-Mart? Why?’
Sieglinde Proctor used to count herself among those who felt like they could afford not to shop at Wal-Mart. When she did broach the idea of shopping there with friends, she said they were dismayed.

“People would say, ‘You shop at Wal-Mart? Why?’” she recalls.

Now, Proctor wonders why she ever wasted money shopping elsewhere. The 60-year-old Gulfport, Fla., resident estimates that she saves $15 every week by shopping at Wal-Mart —money she badly needs in these hard economic times.

“I have to try to survive and I’ll do whatever I need to do, … and Wal-Mart’s been a huge part of it,” she said.

Still, there are some people who say that they will never shop at Wal-Mart, no matter how bad the economy gets. Jill Lane, 45, has long felt that Wal-Mart hurts local businesses, but she really lost faith in the company after reading reports that Wal-Mart sued a disabled former employee to recoup its own medical costs. The company eventually dropped the widely panned effort, but in Lane’s mind the damage was already done.

Others question whether Wal-Mart really offers the best bargain.

With three of her nine children still living at home, Kim Leatherberry estimates that her grocery bill runs to about $1,600 a month. Still, Leatherberry doesn’t think she saves much by shopping at Wal-Mart, especially if she hunts for bargains elsewhere. The cost of getting there also is a factor: She has to drive 20 miles to reach the nearest Wal-Mart.

Over the years, Leatherberry also has become disillusioned by the quality of certain Wal-Mart purchases. The 45-year-old, who lives in Garnavillo, Iowa, says that even with rising prices she tries to avoid Wal-Mart unless she can’t get what she needs anywhere else.

“I go in there and I get so frustrated, and I just prefer not to shop there,” she said.