Today Wal-Mart announced that its U.S. division is continuing to slump. For the seventh consecutive quarter, same store sales declined. This of course is not good news.
There are many factors behind the move, but I suspect one of the primary issues driving the decline is Wal-Mart’s growing focus on private label products.
Wal-Mart grew with a very smart brand strategy: sell well-known brands at incredibly low prices. The Wal-Mart brand stands for cheap. Ask anyone why they go to Wal-Mart and the answer will almost always be the same: “Wal-Mart is cheap.” Of course, low prices also indicate low quality; pricing is a powerful signal. Wal-Mart addressed this problem by selling respected brands. Buying Crest at Wal-Mart is the perfect combination; the quality of Crest at a Wal-Mart price.
This all breaks down, however, when Wal-Mart begins to sell private label products. A product sold under the Wal-Mart brand will presumably be cheap and low quality. This proposition is not all that appealing. Since Wal-Mart has the lowest prices, so one can reasonably assume it also has the lowest quality products.
Wal-Mart can’t easily address this issue. Telling people that Wal-Mart products are high quality isn’t believable given the prices. Increasing prices is inconsistent with the Wal-Mart brand.
In recent years Wal-Mart has dramatically ramped up its private label presence. I’m certain this move looked good on paper. But the move is inconsistent with Wal-Mart’s historical branding strategy and it isn’t likely to work. The more Wal-Mart focuses on private label products the more likely its overall result will erode.