Account for Contextual Influences on Sales

Some years ago, a group of retailing experts commented on how Walmart, unlike almost every other retailer in the world, was so powerful that they’d actually influenced the economy rather than had been at the mercy of the economy. Management consultants McKinsey & Company estimated that between 10% and 15% of the U.S. productivity gains in the late 1990s came from Walmart’s drive for efficiency.
     That was then, and this is now. Walmart is being steered by the economy to a greater extent than Walmart is steering the economy. Walmart year-to-year U.S. same-store sales have been down for six consecutive quarters.
     From a shopper psychology perspective, Walmart stumbled. They failed to sufficiently upscale their image when they decided to aim for the more upscale shoppers who were trying out Walmart for the prices. When that didn’t work, they waited too long to restore the power aisles—the shelves with the overwhelming numbers of a limited selection of products that researchers at University of Wisconsin-Green Bay and Youngstown State University had shown give the impression of low prices.
     Are those errors sufficient to explain the drop in Walmart U.S. sales? Perhaps not. The declines should be interpreted in the context of this being the worst economy in seven decades. Context counts.
     Another example of this point comes from recently-reported research findings at University of Alberta, Dartmouth College, Syracuse University, and Babson College: Tracking about 300 product categories, overall store sales were affected by the price of gasoline. Therefore, the sales figures should be interpreted in the context of gasoline prices.
     When the price of gasoline went up noticeably:

• There was a shift away from regular-priced national brands, as you might expect, but the shift wasn’t toward private-label brands as much as it was toward any brand that was promoted heavily by the store. In the shopper’s mind, promotion implied discount.
• Among consumers who stayed with the national brands, there was a shift in market share from bottom-tier brands to mid-tier brands rather than the other way around. It might be that the bottom-tier shoppers deferred their purchases in that category altogether. It also might be that the bottom-tier shoppers who did make it to the store on their tank of gas decided to treat themselves.

     The lesson, retailer? Ask not just “What’s happening?,” but also, “In what ways does the context help explain why this is happening?”

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