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By Doug Stephens<\/p>\n
In December of 2024 amid the usual array of commodity items on Walmart.com, there was one conspicuous product listing that immediately caught the Internet\u2019s attention. For under $100USD Walmart shoppers could purchase a handbag that bore an uncoincidental resemblance to the storied Herm\u00e8s Birkin bag which, if it were the genuine article, would carry a price tag of at least $10,000USD assuming, that is, that you had the money and the requisite Herm\u00e8s purchase history to lay your hands on one. Herm\u00e8s restricts the sale of these bags to no more than 2 bags per person per year.<\/p>\n
But the buzz surrounding the Birken dupe (dubbed the Wirkin) was merely a little PR prelude to a much more serious and calculated strategic gambit on Walmart\u2019s part.<\/p>\n
On January 16th<\/sup> of this year, the company announced a partnership with Rebag, a U.S. online reseller of luxury goods ranging from Cartier bracelets to authentic Birken bags. While the story generated opinions from all sides on the partnership\u2019s chance of success, few seemed to appreciate that this move by the world\u2019s largest retailer was in fact a signal of an enormous and deepening problem for both Walmart and<\/em> the U.S. economy.\u00a0 A problem that can better be understood by looking back 35 years.<\/p>\n Through the 1990\u2019s Walmart\u2019s growth was on fire; their stock jumped a dizzying 1,173 percent within the decade. Like the Roman army, Walmart rolled out across the American landscape using the massive Supercenter format as its weapon of choice. The company opened hundreds of Supercenters across the U.S. and in the process laid waste to untold numbers of local independent and specialty retailers as well as mid-sized regional chains.<\/p>\n By the 2000\u2019s however, it was a different story. Walmart\u2019s growth slowed and, with the devastating effects of the Great Recession, the company\u2019s stock was down 24 percent. It was here, in the smoldering aftermath of the financial crisis, and under intense shareholder pressure, that Walmart hatched a plan. A plan that would ultimately prove ironic in its naming.\u00a0 A plan called Project Impact.<\/p>\n With Project Impact Walmart sought to upgrade its customer experience by reducing clutter in its aisles, paring down SKU counts, and brightening up its stores. In essence attempting to mimic its archrival Target which was, with smaller store footprints, trendier product assortments and cleaner merchandising, generating higher average gross profits than Walmart, and most importantly, attracting a higher-income shopper.<\/p>\n Walmart, on the other hand, had a \u201cpoor-people problem\u201d.\u00a0 A problem it believed emulating Target could fix. With brighter, more welcoming stores, Walmart was looking for a wealthier, white-collar shopper, one less brutalized by the previous two years\u2019 economic cataclysm. Throughout 2009 and 2010 Project Impact rolled out across 600 U.S. stores. At the time, one industry analyst confidently suggested that Project Impact would \u201cbe the catalyst to wipe out a second round of national and regional retailers.\u201d<\/p>\n America\u2019s largest retailer was being pulled under by a drowning consumer. <\/strong><\/p>\n<\/blockquote>\n Much to the shock of Walmart executives, however, not only did profits not <\/em>rise in renovated stores, but in fact company sales plummeted by an estimated 1.85 billion dollars. The new-look stores did not attract Target customers to Walmart. And to make matters worse they appeared to disenfranchise Walmart\u2019s existing shoppers altogether, who perceived the upgrades as a signal that Walmart was no longer their<\/em> store.<\/p>\n Walmart found itself stuck in a nightmare scenario. And the root issue wasn\u2019t the appearance of its stores. It was the dire financial condition of its core customers, a condition that Walmart itself had contributed to. And one that was now coming back to haunt them. America\u2019s largest retailer was being pulled under by a drowning consumer. A consumer that Walmart, and retailers like them, had thrown into the economic deep end without a lifejacket.<\/p>\n From its beginning in 1962, Walmart founder Sam Walton was singularly intent on making Walmart into a price-focussed juggernaut, squeezing out costs from every crevice of the operation. From mercilessly beating up U.S. suppliers for the lowest prices to paying the meagerest wages possible to its store workers, by exploiting every employment law loophole it could find. And with all of it the brand sent a clear message to the entire market \u2013 Don\u2019t fuck with Walmart<\/em>. When U.S. suppliers, many nearing bankruptcy, failed to meet Walmart\u2019s ever-greater need for lower costs, the company immediately looked abroad to foreign supply. By as early as the mid-1980\u2019s, some estimates put Walmart\u2019s percentage of imported goods at 40 percent.<\/p>\n As Walmart grew, so too did the percentage of imported goods it sold to Americans, moving increasing purchases to Chinese manufacturers. And as the Chinese manufacturing sector exploded, the American manufacturing sector imploded, pushing many Americans from the middle class into the working class or underclass. The Walmart shopper of 1962 was the beneficiary of a rising tide of wages, benefits, union protections and personal savings. The Walmart shopper of 1982 was increasingly financially stressed, indebted and insecure in their futures.<\/p>\n If you\u2019re a retailer today your customer either holds the money or carries the debt.\u00a0<\/strong><\/p>\n<\/blockquote>\n By the 2000\u2019s upwards of 80 percent of the goods housed in the aisles of Walmart were made in China.\u00a0 Mirroring the import filled shelves of Walmart, the U.S. economy shed 33% of all jobs in the manufacturing sector between 2000-2023, severely limiting employment prospects for those without a college education.<\/p>\n The result is that while Walmart has grown, the company and the operating strategies it popularized have had a devastating impact on the very middle class that Sam Walton aimed to serve with low, low prices. By wiping out much of America\u2019s blue-collar workforce, Walmart had wiped out the economic prospects of generations of its own customers. To put it in Walmart-speak, it was a massive economic \u201croll-back\u201d at the expense of America\u2019s middle class.<\/p>\n In seeming recognition of this, Walmart has recently been working to undo some of the damage it caused. In 2020 the company, stung by the broken Asian supply chains of the pandemic, pledged to repatriate a percentage of its purchasing power with U.S. manufacturers. Had the pandemic never happened, it\u2019s anybody\u2019s guess whether Walmart\u2019s sudden rush of commercial patriotism would have happened at all. But even if accepted as sincere, it remains to be seen how much of Walmart\u2019s merchandise will come from domestic manufacturers (or what\u2019s left of them) and how such a move would upset Walmart\u2019s price led positioning.<\/p>\n In 2024 the company also began raising both starting wages and store manager compensation levels in its stores. Time will tell if these measures are enough to breathe life back into an American middle class on life-support.<\/p>\n In a broader sense, this hollowing out of the once robust middle class has also resulted in the evaporation of what used to be known as the aspirational consumer class<\/em>. These were consumers who would squirrel away their savings over time, with the plan of one day owning a luxury car, upscale appliances or perhaps a designer handbag.\u00a0 There is no longer such a consumer.\u00a0 If you\u2019re a retailer today your customer either holds the money or carries the debt.\u00a0 There\u2019s little life left in between.<\/p>\n This shift is not lost on luxury brands, who seem clear-eyed in the reality that their futures are now wholly dependent on the fortunes of the wealthy.\u00a0 Since 2019 prices for luxury goods have risen by upwards of 50-60 percent eliminating any feasible entry point for the average consumer. When it comes to luxury today, you can either afford it, or you can\u2019t \u2013 even at Rebag\u2019s prices.<\/p>\n And so, this gambit with Rebag is yet another attempt by Walmart to extricate itself from the sinking fortunes of the American underclass, while perhaps doing so in a less risky way than in 2009.\u00a0 The real question is whether there\u2019s any remaining buying power between the Wirkin-Class and the Wealthy to make this bet pay off.<\/p>\n Doug Stephens is the Founder and CEO of Retail Prophet, and widely regarded as one of the world\u2019s foremost retail industry futurists. His creative and intellectual work have influenced the strategies of global brands including IKEA, Nike, Coca Cola, Louis Vuitton, and L\u2019Or\u00e9al.<\/p>\n He is an international bestselling author of three books on the future of retail including his most recent, Resurrecting Retail: The Future of Business in a Post-Pandemic World.\u00a0 Doug is also an in-demand speaker on the future of retail.<\/p>\n Doug is also a nationally syndicated retail columnist for CBC Radio and sits on multiple corporate and academic advisory boards, including the David Sobey Centre for Innovation in Retail at St. Mary\u2019s University.<\/p>\n His unique perspectives on retail and consumer behavior have been featured in many of the world\u2019s leading publications and media outlets including The New York Times, The BBC, The Business of Fashion, The Wall Street Journal and Fast Company.<\/p>\n \u00a0<\/p>\n<\/div>\nProject (Negative) Impact<\/strong><\/h5>\n
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About the Author<\/h5>\n