Eighty-five per cent of transactions in Walmart stores are paid for in cash or cash equivalent, and there is still a disturbing correlation between government assistance funds being paid out to consumers and essentials being purchased at Walmart. That said, surely if shoppers in this low-income bracket do not have access to credit then it is unlikely they will have the ability or desire to buy products online. Walmart clearly disagrees, stating that 81% of “unbanked” consumers still have internet access.

Regardless, I can’t help but think this takes the term ‘multi-channel’ just one step too far. Shoppers select items online from Walmart.com, then within 48 hours go to the store (either Walmart or Neighborhood Market) to pay for the item, and then arrange for the items to be delivered to their home or local store. Surely, it would be more convenient to just go to the store, pay and take the product home the old-fashioned way.

Retailers in emerging economies have been embracing a similar strategy for years except cash is often paid upon delivery, particularly in markets like India and Russia. In South Africa, consumers can purchase virtual cash vouchers from Ukash, enabling them to buy online from major chains such as Shoprite and Pick n Pay. Even in more developed markets like Japan, consumers can order online from Amazon and pay in cash at their local 7-Eleven convenience store.

Despite its complexities, Walmart’s initiative will help to raise awareness of its ongoing efforts to play catch-up in the digital world. If a success at home, Walmart will inevitably roll this out to the many emerging markets in which it operates.

The implication: This isn’t just a name change, but a move to make the packaging and quality of its bottom-tier range far more attractive to value-seeking shoppers. The products will contain no MSGs, GMOs, and many will be UK-sourced. This will help to improve both price and quality perception, but I imagine there will be an element of self-cannibalization as shoppers trade down from the standard Tesco range.

The verdict:
Better late than never, although Tesco is certainly behind both global and domestic peers in this regard. During the recession, Walmart revamped Great Value in a similar vein. Carrefour Essentials also replaced the hideous No. 1 range. What did Tesco do? They launched, errr, Discount Brands. Rather than playing to their strengths and improving Value, they complicated the offering by adding a whole new fourth tier.

Meanwhile, at home, we’ve seen some fantastic innovation in the bottom-tier category, particularly from Morrisons who has shown us that cheap can still be cheerful.

Everyday Value will give the new M Savers items a run for their money. These items are both under 50p.

Now, after their first profit warning in 20 years, they are having to go back to basics. They are not alone here. Walmart, having slashed thousands of SKUs and moving away from EDLP, suffered from two years of declining comps. They’re now back on track because they have gone back to their core – offering low prices on a wide assortment of brands. Tesco has underinvested in its stores, they’ve become too discount focused (ironically without genuinely being the cheapest) and they’ve lacked innovation in the food category with the exception of a few premium pet brands and some posh ice cream. The launch of Everyday Value isn’t rocket science, but it’s certainly a step in the right direction.

For more on private label trends, clients can read our report here.

Getting back to basics is working. WMT has added back 8,500 SKUs.

Margins were hit because some of the initiatives launched to target core shoppers, although vital and clearly working to drive topline growth, are not cheap. Layaway and the Christmas Price Guarantee (sound familiar, UK readers?) are both good examples. But Walmart is right to focus on its core customer group, which they so publicly neglected during the days of Project Impact in the hope of acquiring new and more affluent shoppers.

Walmart learned the hard way that it cannot veer too far from its core. Low prices and a wide assortment of brands are integral to its success. That said, the key challenge for Walmart going forward will be maintaining this concept in the face of the ever-growing online threat. They’ve been scrambling to make up lost ground in this area, and crucially now have a leadership team in place with the relevant experience to drive this forward. Walmart has been planting big boxes for the past 50 years but, like its global peers Tesco and Carrefour, is struggling to maintain its relevance in today’s digital world. Going forward, Walmart’s bricks and mortar strategy must become much more event-driven and supported with exclusive ranges to avoid direct price comparisons. While we maintain that Amazon poses the biggest threat, Walmart has the opportunity to leverage its physical store base. More needs to be done to create a seamless shopping experience across all channels.

Although we never rule it out, we do not envisage any additional new market entries in 2012 unless an opportunity presented itself. Longer term, we expect to see further M&A activity in existing markets such as Brazil as well as in new ones like Russia. This year, Walmart will have its hands full with further integration in South Africa and, to a lesser extent, the UK. Entry into the Middle East with George franchised stores will be cautious, but if successful could represent a new route to market in other parts of the world.

Last but not least, I’m excited to say that my book on Walmart will be launched in just over one month! Details can be found here if you’re interested, and I’ll also be discussing more on Bloomberg TV at 6:40 tomorrow.

Plassat had reportedly turned down the offer of Carrefour CEO back in November, although the retailer denied that it was searching for replacement.

The departure of Lars Olofsson has been on the cards for awhile now. His attempt to revitalise the hypermarket format, although well-intended, was unrealistic and too costly. Various profit warnings, declining share in its domestic market and slumping like-for-likes, particularly in its core European hypermarket division, meant that it was only a matter of time before we saw a change at the top.

As we said last week after the retailer’s Q4 results were announced:

The Carrefour business model is inherently flawed given its over-dependence on a dated format and slow-growth markets. The company cannot carry on in its current state; a more drastic approach is needed to revitalise the business. Although Carrefour planet is a step in the right direction, it has proven too costly as a means of saving Carrefour. Up until now, the retailer has done very little to address the undeniable fact that non-food spending has shifted online. Rather than directing capital towards indulgent remodels, money would be more wisely spent ramping up multi-channel functions such as click & collect, instore kiosks and e-commerce. Without this, the hypermarket concept doesn’t have much of a future.

The appointment of Plassat should be viewed as a big win for Carrefour. Plassat is a well-seasoned retail executive with the non-food experience that Carrefour so vitally needs to turn around its hypermarket division. Equally, his experience at competitor Casino and even Carrefour itself, means that he is well versed in the French hypermarket scene.

We expected the next boss of Carrefour to be French, given the critical need to revamp its domestic operations. At private equity-backed Vivarte, Plassat had a strong track record of buying out French clothing brands such as Naf Naf and Kookai. While we certainly do not envisage French acquisitions in his new role at Carrefour, it is his experience in non-food that Carrefour will look to draw upon. Plassat may, for example, look to reduce the size of the average Carrefour hypermarket, moving many non-food items online, in order to improve sales densities. Pricing will need to become sharper and, although Carrefour has taken steps to improve price perception as recent as this week (with the announcement of a new price guarantee and reductions on 500 items), it still has a long way to go in comparison to its peers. We also imagine that the roll-out Carrefour Planet will be halted temporarily – and perhaps even permanently – while Plassat comes up with a Plan B for revitalising the hypermarket.

The sixties was a momentous decade for retail. In 1962, America’s first Walmart, Kmart and Target stores debuted. Across the Atlantic, the world’s first ever hypermarket – a Carrefour store in Sainte-Geneviève-des-Bois, France – opened for business the following year and by 1968, Tesco launched its superstore concept in Crawley, West Sussex.

These events changed the world of retailing for years to come, with many shoppers attracted to out-of-town megastores for three primary reasons – low prices, a broad assortment and the convenience of buying everything under one roof.

Fast forward fifty years and there is a more relevant format for today’s shopper that ticks those same three boxes – the internet.

In Philip Clarke’s words, big-box stores today are becoming a “less potent force” as more and more people buy non-food items online. The growth of smartphones and tablets will only accelerate this growth, albeit at some expense to traditional e-commerce. Meanwhile, pure-play e-commerce retailers have turned it up a notch – last month, Amazon rewarded US shoppers with a 5% discount online for price checking products while in a competitor’s physical store.

Online retailing, although certainly a thorn in the hypermarket’s side, isn’t the only concern. An ageing population and more single households are favouring local shops over bulk buying.

So what’s a hypermarket to do?

How big is too big?

Hypermarkets must adapt – first and foremost by accepting that retail is rapidly moving online. They can in fact be a part of this movement by streamlining and leveraging their store base - fewer stores and more services such as click & collect and instore kiosks are needed to offer a holistic multichannel approach.

The key thing is giving shoppers an incentive to drive to an out-of-town superstore. This can come in the form of creating a compelling instore environment although, as we have witnessed with Carrefour Planet, this can be too costly for a wide-scale roll-out. Exclusive products will play a much bigger role going forward, not only as a means of avoiding direct price comparisons but also driving shopper loyalty. The new Shops at Target concept, which debuted in New York last week, features limited-time merchandise from several boutique retailers across the US. This injects an element of excitement into the instore experience – and few mass retailers do this better than Target – however the big risk for both Carrefour and Target is loss of identity. But perhaps that’s not such a big sacrifice given the broader challenges.

As such, there are no checkouts in the store nor are there any physical products that you can take home. Let’s face it - this purely as a marketing initiative rather than a credible threat to the high street (in fact we couldn’t help but overhear an eBay exec saying that they do not expect to make any money from it!).

That said, it’s a fantastic way for eBay to generate brand awareness, particularly given that the first week of December is its important for Christmas trading. eBay is also aiming to shrug off its perception as a purely auction-house retailer, highlighting to shoppers that there are thousands of products that can be bought new on ebay.co.uk. Flaunting its value credentials, the eBay Christmas Boutique also features high street brands such as Karen Millen, House of Fraser and Office offered at a hefty discount through their online outlet shop.

The shop is the latest example of online and offline converging in the UK retail sector. Earlier this year, Amazon installed pick-up lockers in the One New Change shopping centre in London, marking the first time the pure play online retailer moved into physical space in the UK. It’s no surprise that retailers like Amazon and eBay are benefiting from the growing shift towards online and mobile purchases, as well as internet price transparency resulting in some high street locations effectively being turned into showrooms.

However, even the pure play retailers are recognizing that the future is not online, but multichannel. Shoppers are dictating when, where and how they want to shop. The real winners this Christmas will be those that feature an integrated multichannel strategy, giving shoppers the option to research, transact and collect on their own terms.

Subdued consumer environment

Challenging will be an understatement when describing this year’s Christmas trading period. Consumer budgets remain under a tremendous amount of pressure, particularly as wage growth has not kept up with the rate of inflation. As a result, real disposable income is at its lowest level in three years. People are having to do more with less, even within the non-discretionary grocery sector where Sainsbury’s is seeing shoppers spend £5 less per week.

As a result, in a flat market (or negative if you strip out the impact of inflation or look at it in volume terms), the only way for retailers to grow is to steal market share from the competition. Christmas is therefore looking fiercely competitive this year, with many promotions starting earlier than ever before. Clothing retailers in particular have been forced to discount in order to shift winter stock that hasn’t sold due to the unseasonably warm weather. Debenhams’ 40% off sale in November is a sign of the times.

Black Friday, traditionally a US shopping event, has resonated with UK retailers as well this year (albeit to a much lesser degree). Dixons launched a 100 hour price crash in late November and US-based players like Amazon and even Apple discounted this year in a bid to capitalise on the last pay day before Christmas.

It’s no secret that Christmas merchandise hit the shelves particularly early this year, as we saw promotional displays for mince pies at M&S and Cadbury’s Christmas chocolates at Tesco back in early September. The latest set of ONS retail sales data from October - controversy aside - showed an unexpected increase, further indication that shoppers have started early in a bid to spread the cost of Christmas over several months. Asda said that more than 80% of consumers had already begun their Christmas shopping by November and Tesco believes that only 10% of shoppers will wait until last minute. With all the promotional activity taking place in the market, there is little incentive for shoppers to hold out as they had done in the past.

Profit margins will be squeezed

A major challenge for retailers is the increasingly dangerous combination of weak demand and rising costs. Purse strings may be loosened for Christmas but the heavy amount of pre-holiday discounting will dilute the appeal of January sales. What is more, last year the looming VAT rise helped to stimulate purchases of big-ticket items and also helped provide retailers with a powerful marketing tool as many absorbed the cost of the VAT increase throughout January. This year, retailers will have to be more creative when it comes to stimulating spend post-Christmas. Tesco, for example, is offering shoppers six months of interest-free credit on big ticket items such as televisions and iPads.

There will be a lot of pressure on margins this Christmas, as those retailers absorbing cost increases are finding it difficult to generate enough sales volume to make up for the investment. In clothing, we have already seen recent profit declines from the likes of M&S, Arcadia Group and even Primark, all of which have not passed on rising raw material prices to consumers. Rising wages in Asian manufacturing countries will also put a hamper on profits.

Grocery retailers meanwhile will be cushioned by shoppers trading up and treating themselves to more premium food over the festive period. Luxury private labels and innovative endorsements, such as Waitrose and Heston/Delia as well as Asda Extra Special and Leiths, will drive loyalty and help to cushion profits which have been dented due to the heavy price wars. However, the food sector remains fiercely competitive and rising commodity costs will be a long-term trend, impacting both the top and bottom line.

Looking to 2012, there will be some silver linings. The Olympics and Queen’s Diamond Jubilee will help to lift consumer sentiment in a similar fashion to the Royal Wedding in 2011. Interest rates are also expected to remain low which will be good news for home-owners as a potentially greater portion of their discretionary spend can be diverted to the high street.

Technology and multichannel driving the market

Mobile technology is changing the game for retailers this Christmas. This year, shoppers are armed with their own personal price checkers in the form of smartphones, creating a whole new level of transparency. Some retailers are succumbing to this trend, such as John Lewis which has installed Wi-Fi in its stores, whereas others have reportedly removed barcodes from products so shoppers cannot check prices instore. The latter is clearly unsustainable (not to mention un-shopper friendly) but this new level of price transparency is a real challenge for physical stores which are essentially being turned into showrooms. This reinforces the need for retailers to invest in exclusive products which cannot be easily price-compared and offer a true point of distinction. We expect to see further partnerships and exclusive ranges launched in 2012.

Meanwhile, pure play online retailers such as Amazon are clearly benefiting from the trend towards internet price transparency and will without a doubt be a big winner this Christmas. But they too will face challenges – last year’s snow meant that many shoppers did not receive their gifts on time and therefore we expect shoppers to be more cautious this year, either ordering early online or looking to stores with a multichannel offering. Shoppers are dictating when, where and how they want to shop, whether that is instore, online or increasingly via their mobile phones. Department stores such as Debenhams and John Lewis (despite recent woes) are well established in this regard. Looking to the future, retailers need to adapt to changing shopping patterns, recognising that growth in e-commerce, m-commerce and click and collect will to some degree come at the expense of traditional bricks-and-mortar growth. Longer term, this will require mid-market retailers in particular, such as Mothercare, HMV and select Arcadia brands, to streamline their store base and focus on driving online growth.

At the same time, we are seeing a convergence of online and offline with pure play retailers coming to the high street. Amazon for example has recently installed pick-up lockers in shopping centres for online orders while Ebay will open its first temporary pop-up store on London’s Oxford Street in December, the latter of which is especially innovative given the limited nature of the concept and therefore the ability to stimulate spend and generate brand awareness without the need to discount.

Technology is not only beneficial as a source of price and sourcing information, but retailers will also use it as a way to differentiate instore this Christmas. Tesco’s introduction of augmented reality is a fantastic example. Meanwhile, retailers across the board are embracing QR codes as a means of educating shoppers, driving loyalty and, crucially, making it about more than just price.

So, in conclusion, we expect winning retailers this Christmas to demonstrate the following 3 traits:

•    Strong multi-channel offering to let shoppers decide when and where.
•    Exclusive products to drive loyalty and avoid direct price comparisons.
•    Value for money, though not necessarily low prices.

If you’re interested in the full piece where we analyse winners and losers by sector, please get in touch with Robyn in our Marketing team: robyn.ashman@planetretail.net

But let’s not get too excited here. Not only did Walmart (corporate) report an unexpected decline in net profits, but Walmart US saw a decline in shopper traffic during the third quarter. Not good news as we head into the all-important Christmas trading period.

Grocery, health and wellness and hardlines – which make up 75% of Walmart’s business - are comping positive. No surprise here as these are all areas where Walmart is adding back SKUs: more than half of the 8,500 SKUs being added back are in grocery - which has also been boosted by inflation - whereas another 1,700 are in health and wellness and an additional 3,100 in hardlines (given that an initial reduction in fishing poles and firearms left shoppers stumped.)

So that leaves us with three categories that, by process of elimination, are still in negative territory:

1) Entertainment – the biggest concern given the competitive state of this category online. Over the next crucial six weeks, Walmart’s Christmas Price Guarantee should help to instill trust among shoppers although this guarantee does not include “internet pricing”. In other words, Amazon will continue to steal share (and as a side note, Amazon’s soap.com just added 10,000 dry groceries to its offer, proof that it is en route to becoming a credible threat in more than just the entertainment category)

2) Apparel – a category that has suffered for quite some time now. It’s never been entirely compelling to begin with and Walmart has learned from previous mistakes that venturing beyond the basics is a dead end route. The recent announcement of the relocation of its apparel HQ from NYC to Bentonville is a sign of the times.

3) Home – again, a challenging area for Walmart given the discretionary nature of the category and lack of compelling offer compared to its peers.

So, whilst it’s good news that the retailer is comping positive in its core categories, there is no denying that Walmart must address the thorn in its side - that large, pesty threat from the world wide web.

Like all of the retailer’s small formats, Walmart Supermercado follows the basic principles of:

•    EDLP - prices are comparable to Supercenters
•    Emphasis on fresh to ensure frequency
•    Edited assortment supported by international private label - Great Value and Equate in this case

Walmart Supermercado is going after higher-income consumers

What is interesting about this concept however is that, unlike in other markets where Walmart has recently launched mini stores, in Argentina Walmart already operates a small-box format - Changomas Express (introduced a couple of years ago). However, this is where the similarities end. Changomas Express, like many of Walmart’s bodega formats in Latin America, target lower-income consumers whereas the Supermercado format will be going after a more affluent group – the first store is located in Caballito which, according to my Argentine colleague Florencia Schiavon, is an up-and-coming middle class neighbourhood in Buenos Aires. Meanwhile, the store’s mahogany shelves and soft lighting has more than a faint whiff of Neighborhood Market about it.

Changomas Express is far more discount-oriented

It’s all about getting closer to the consumer, something Walmart has recognized is no longer always achievable with its Supercenter format. In Argentina in particular, Walmart has been late to embrace smaller formats, falling behind key rivals such as Carrefour and Cencosud with their respective Market/Express and Disco concepts. Walmart Supermercado is roughly 7,000 square feet, similar to an Asda Supermarket and about half the size of a Walmart Express. Overall, we’re optimistic about this concept here at Planet Retail. It is a great way to backfill markets with a more appropriate format for the consumer base and, if it proves a success, I could certainly see it being exported to a number of Walmart markets around the world. The key concern however is around cost, particularly if this format will be used to penetrate higher-income, urban areas where real estate costs will inevitably be greater.

For a full analysis from our Latin American analyst Carlos Hernandez, click here (client only).

The launch of the PnP Finest range not only represents another strategic initiative modeled after Tesco in the UK, but also indicates that domestic retailers must differentiate in order to effectively compete with Walmart.

Pioneered by Tesco, the good-better-best approach to private labelling is now a common strategy pursued by retailers around the world. A tiered approach enables retailers to cater to the growing cherrypicking trend among shoppers. In particular, Pick n Pay’s Finest line, which features products like Fine Belgian Chocolate and premium South African rooibos tea, will resonate with the country’s burgeoning middle class, many of which will be tempted by new restaurant quality food at competitive prices. Aside from Woolworths, most retailers in South Africa have traditionally shunned premium private labels, instead opting to focus economy and standard lines.

Pick n Pay private label has until now been focused on standard and economy tiers

Woolworths' premium private label has been an exception to the norm (thanks to its M&S ties)

The country’s geographic isolation and consequent sourcing challenges have made it difficult to grow private label sales; however, Pick n Pay has been working to change this, growing its share of own label from 11% to 29% in recent  years. Looking ahead, a combination of a growing middle class and the recent entry of Walmart will require a shift in thinking, not only for Pick n Pay but for all retailers in Sub-Saharan Africa.

Although Walmart is quickly working to integrate Massmart’s operations, its real impact has yet to be felt. Walmart will not only stimulate private label development in the market but will also require local retailers to focus on driving operational efficiencies and review their own pricing strategies. Walmart is rolling out EDLP to all international operations and South Africa, despite the promotional nature of the market, will certainly not be an exception. Domestic retailers simply cannot compete with Walmart on price and therefore investment in initiatives such as private label and format development are key.

Pick n Pay has been doing all the right things in order to make itself a leaner, more competitive player. Therefore, it’s no surprise that they have been linked to Tesco as a potential future acquisition target, especially when considering the strong overlap in merchandising, store formats and shopper-centric strategies.

Despite the resistance Walmart faced upon its entry, it’s fair to say that the retailer is certainly acting as a catalyst for change in South Africa.

*Planet Retail is offering a temporary discount on this report. Please contact robyn.ashman@planetretail.net for more info.