Are Wal-Mart Products Too Cheap?

When GSD&M Advertising was Wal-Mart’s (WMT) advertising agency, before they were fired. the firm put together a 55-page report about the views that customers had of Wal-Mart. According to The New York Times: The report also asserts that “for most people and for most shopping occasions, Wal-Mart is the smart choice.”

But, what the report really says is that Wal-Mart is the smart choice unless it isn’t.

The more interesting part of the document pushes the theory that for higher-end goods like electronics and contemporary clothing having low prices may make Wal-Mart seem "cheap" to some customers. Maybe the merchandise is not good enough if it is on sales for such a low price.

It is a nice theory, but it is probably not true. Whether shoppers go to Wal-Mart or Target (TGT) or CostCo (COST), they are there to get stuff at the lowest price. Perhaps some less-than-intelligent consumers can’t look at the merchandise and make their own decisions about quality. But, they are probably in the minority.

Wal-Mart’s same-store sales problems are probably not related to customer thinking that "cheap" means "low quality". More likely sales are off because Wal-Mart has too many US stores and may be competing with itself. And its competition is getting smarter. When Wal-Mart was growing like a weed, Target and CostCo were still small companies. They have continued to open outlets and their target is Wal-Mart. The world’s largest retailer has a lot of companies going after its market share.

Consumers like "cheap". Almost none of them are fooled into thinking that it means "lousy quality" especially at the really large, branded retailers.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.