Under Wal-Mart's Hood

In another move to win over the finicky court of public opinion, Wal-Mart (NYSE: WMT  ) announced plans to open 50 new stores in "neighborhoods with high crime or unemployment rates, on sites that are environmentally contaminated, or in vacant buildings or malls in need of revitalization."

Environmentally contaminated?

Now, before you come back with the obvious cynical jab -- that this will only cripple the poor mom-and-pop shops in the area -- Wal-Mart is also rolling out a "Wal-Mart Jobs and Opportunity Zones" initiative to aid area businesses.

See, not only is Wal-Mart armed with the ability to create between 15,000 and 25,000 new jobs with the move, but it is also creating 10 different "zones" that will aim to empower and enable small, mostly minority-owned businesses.

Snicker if you must, but it's some pretty nifty timing on Wal-Mart's behalf. Next week, the company has a government hearing to see whether it will be able to open a specialized bank. With the folks in the banking industry already nervous over what the ultimate implications are here, you can bet that they will be ready to sling mud Wal-Mart's way.

The last thing Wal-Mart would want people to envision is the world's largest retailer opening up an upscale discount store in Texas complete with fine wines and a sushi bar. Now Wal-Mart can walk into the proceedings as the enabler of area commerce with its new initiative, instead of as the perpetual squasher.

The three sides of Wal-Mart
Everyone likes to boil down Sam Walton's empire to either all good or all evil. The anti-Wal-Mart side will take the company to task for its hiring practices and its disruptive ways. The pro-Wal-Mart side will argue that the company creates communities with more disposable income as it provides cheaper prices on goods and is a regular contributor to charities and tax rolls.

In reality, most of us fall into a gray area in the middle. If you've never picketed a Wal-Mart opening -- or picketed a picketing -- you're probably more like me. You take the good with the bad of Wal-Mart. Given the choice, you'd probably go the cheap-chic Target (NYSE: TGT  ) route if you needed a discount-department-store chain, but you're not the type to forgo a $30 DVD player or a $15 toaster at Wal-Mart on principle.

If Wal-Mart wants to win the public relations battle, it doesn't have to cater to the radical opposition that wants to eradicate Brokeback Mountain DVDs off the Wal-Mart shelves. All Wal-Mart has to do is win over the masses in the middle. And it wouldn't take much for Wal-Mart to position itself as a community darling. It just has to present itself as a more locals-friendly establishment.

The 10 new empowerment zones are too few to have a widespread impact on the chain as a whole, though its heart is in the right place. The company will spotlight as many as five small businesses every quarter. It will promote them through newspaper ads and radio ads, and even in its in-store audio loops. Beyond the highlighted businesses, Wal-Mart will offer area companies the opportunity to take in business seminars as well as provide them with exclusive trend reports.

Wal-Mart bashers are likely to interpret this move as a thinly veiled disguise. The ads and feel-good support, they may claim, will simply be Wal-Mart once again using the struggling independents to promote its own establishment. Tough crowd, I tell you.

Yet that's exactly why Wal-Mart shouldn't stop there. It's on to something.

The localized way to nationalized acceptance
Promoting area businesses is going to score Wal-Mart points in the gray-area camp. Opening stores in difficult neighborhoods isn't going to be a financial loss-leader -- just check out the success of Citi Trends (Nasdaq: CTRN  ) -- so it will be a financially viable strategy with media-appeasing benefits. It can help take this big-box, cookie-cutter behemoth to the next level of winning over the mainstream masses who can take or leave Wal-Mart.

See if you can spot a flaw in my plan. If Wal-Mart were to devote 10% of its CD rack space to local artists, what would happen? Logistically, it may seem cumbersome at first, since decisions would need to be made to vet the music, and many local artists would need help in pressing CDs with UPC bar codes.

In a more ambitious setting, local artists would be able to upload their music to in-store kiosks that would sell the tracks digitally or pressed onto customized CDs. At the very least, something as simple as having Wal-Mart press local-artist compilations on a monthly or quarterly basis would allow the company to weave itself into the community's fabric.

Selling local music and showcasing select tracks on its in-radio network would be an easy way for Wal-Mart to endear itself to the local community. Think of the friends and families of musical artists in the area, stopping by as patrons of a store and lending a hand to the local music movement. Wal-Mart would go from being a canvas of vanilla-bean homogenization to a cultural icon.

Music is a bigger key to successful retail relations than most think. Why else would Starbucks (Nasdaq: SBUX  ) launch a music channel on XM Satellite Radio (Nasdaq: XMSR  ) and then stream it in its stores? Wal-Mart has the chance to beat out Starbucks to the local-music scene.

More than just music
It doesn't have to end with a local-music initiative: The limited book racks can also devote shelf space to local authors. Furthermore, Wal-Mart food concessions are either bland or outsourced to successful fast-food chains. How intriguing would it be if the company were to promote area restaurants by spicing up the menu every month with easy-to-prepare recipes?

Most of the discounters like Wal-Mart and Target can always point to a donating a portion of their sales to local charities. That's nice, but how many can point to directly fortifying members of the community with exposure and the platform to move their goods? Even a company that prides itself on buying in volume and passing off the savings to its consumers can still play a role as a catalyst for local transactions.

Why does Wal-Mart need to do this? I'll tell you. Wal-Mart's government hearing to launch its own industrial loan company next week shouldn't even be an issue. It can point to Target already having that right. It can point to Sears Holdings (Nasdaq: SHLD  ) and its many forays into financial services over the years. How can Wal-Mart be denied?

Yet it can. Until Wal-Mart wins that huge gray-area camp of supporters in the middle, it will have to deal with a country that consists mostly of indifferent spectators watching two thin opposing camps duke it out.

It's time for Wal-Mart to hit the lawn and garden department and cultivate some grass-roots marketing.

XM Satellite Radio was recommended toRule Breakerssubscribers last year. The average Rule Breakers newsletter pick has gained 33% during a time in which the S&P 500 has averaged just an 8.4% return.Starbucks is aMotley Fool Stock Advisorrecommendation. You can try out any of our investing newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has probably spent more at Wal-Mart's online store than at its offline empire in recent years. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 502907, ~/Articles/ArticleHandler.aspx, 4/20/2014 12:35:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement