Surprise! Millennials love Walmart (WMT). You heard that right: Today’s 18 to 35 year-olds think the world’s biggest retailer is the ideal way to “Save Money. Live Better.” The premise brings a sigh of relief to long-term owners of WMT stock who were worried the company may outgrow its relevancy as the baby-boomers fade away and the digital generation comes into its own.
At least, that’s the message Walmart Chief Merchant Steve Bratspies told analysts at this week’s Raymond James conference.
Yeah, I don’t believe it either. And not just because the source of the information was biased.
As it turns out, the only organization or individuals saying Walmart has a firm grip on millennials is Walmart. There’s a small mountain of other semi-empirical evidence suggesting today’s young adults merely tolerate Walmart and would gladly patronize any other establishment if they could.
It’s a bit anti-climactic to begin with what would normally be a closing conclusion, but it’s merited in this case because one has to know where the subjective evidence is going. Here goes … there’s a big difference between “millennials love Walmart” and “millennials shop at Walmart.”
Or perhaps the more meaningful way of saying it would be to point out there’s a difference between “millennials love Walmart” and “it’s a hassle for millennials to shop anywhere else.”
With that as the backdrop, this is the snippet from the company’s recent conference call that’s stirred up the discussion (Bratspies’ words):
“The customer today is changing dramatically. Who they are, what they want, how they shop, where they shop, when they shop, lots of different changes that are going on all at one time. 79 million of them are millennials, and what’s great is they are moving into prime spending years … They are the most value driven generation that was seen in my life time, slightly ahead of Gen X but they are very, very focused to value to lines for Wal-Mart. And they also had a strong affinity for Wal-Mart than any of the generations … 66% of millennials have shopped at Wal-Mart store in the past month. And they are more likely than the total population to shop Wal-Mart store. So it’s a very important customer to us, the one that aligns very well with our business … Fundamentally it’s because we have the products that they want.”
Some credit has to be given to the company. It is solving some nagging problems, like empty shelves, terrible customer service and insulting wages.
Just for the sake of argument, though, is it possible that millennials choose Walmart mostly because there are 5229 Walmarts peppered all across the U.S. and the next nearest competitor — Target (TGT) — only operates 1793 units in the United States? Could it simply be that 90% of the U.S. population (including millennials) lives within a 15 minute drive of a Walmart store?
It’s a relevant question current and would-be owners of WMT stock should be asking, not because Walmart has failed to dominate through sheer size, but because the company’s self-congratulatory back-patting tends to ignore the fact that the only real loyalty those “value focused” 18 to 35 year-olds have is to their own wallets and pocketbooks. Their political and social ideas are a close second. Their brand loyalty is distant third at best.
In other words, Walmart may be mistaking fortunate circumstances for savvy thinking. It should be a concern, as when those millennials get a little older and start making a little more money (and have more time), that demographic will be able to afford making shopping decisions based on their principles rather than their pocketbooks.
When that’s the case, Walmart may be shocked at how tough it becomes to make a buck.
Walmart’s Reality Check
As evidence to its vulnerability the company is ignoring, one only has to look at an apples-to-apples metric of millennials’ so-called “love” of Walmart and comparable brands, as supplied by Net Promoter® Score. Forbes contributor Pam Goodfellow laid out the unflattering details last year, with millennials giving Walmart a lower loyalty/satisfaction score than rivals Target and Amazon (AMZN).
Though dated, this mid-2014 poll of millennials pegged Walmart as their least favorite company. Among the biggest of the cited complaints were employee attitude, poor product quality and the company’s treatment of its workers.
Some of those things have been partially addressed in the meantime. All of those things, however, are tough to change in a holistic way … particularly when the company strives to maintain its advantage as a low-price leader.
Point being, be careful of what you believe. Walmart is being selective about its market research and subsequent assumptions.
Bottom Line for WMT Stock
Contrary to the tone, this isn’t inherently a bearish outlook on WMT stock. Indeed, yours truly here has actually been a fan of WMT stock based on the retailer’s revamp efforts that largely start with an overhauled e-commerce presence.
I call ’em like I see ’em, though, and to the extent the company truly feels it’s won the war for millennials, it’s setting itself up for a shock down the road.
Owners of WMT stock will ultimately pay the price when the time comes. How much of a price depends on what else the company does right or wrong in the meantime.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.