Wide selection, sharp prices key to success in toy sales - Wal-Mart Stores Inc - Wal-Mart

Discount Store News, June 7, 1993

The toy department at Wal-Mart may be filled with toys to tickle a child's fancy, but the merchandising program is anything but fun and games.

For Wal-Mart, toy merchandising is serious business.

Vendors supplying Wal-Mart - the No. 2 toy retailer in the country behind Toys "R" Us - report that the discounter applies the same rigorous standards for product movement, price controls, category management and return on investment in toys as the chain does in every other area in the store.

Wal-Mart's toy merchandising strategy is clear, vendors say. The No. 1 discounter wants to be the big player in the toy industry by offering a greater selection of toys than the competition at the sharpest prices in a market. Said one manufacturer: "They're doing what they do best: offering a good selection at everyday low prices and working on their overhead structure to keep their prices competitive with everybody in the world."

While vendors largely agree that Wal-Mart's toy presentation is visually unexciting - that is, straight forward with few signs and devoid of eye-catching displays - it is completely on target in its assortment and retail pricing structure and serves to meet and often exceed a customer's expectations.

"The reason people go back to Wal-Mart is that they [Wal-Mart] have raised the expectation level of their customers beyond the level of their competition," observed Jim O'Connell, vice president of sales at Lego.

Added another vendor who asked to remain anonymous: "It [Wal-Mart's toy department] may look boring but these folks really attract customers with their everyday low price strategy. They could do better by staying in stock everyday on basic merchandise all the way through December and they are working on that."

The distinguishing characteristic of Wal-Mart's toy department is the discounter's technology systems, sources report. So refined are the systems and programs in toys, that the application of micro-marketing techniques, including Wal-Mart's "traiting" program, will eventually be applied to this category of merchandise.

"Traiting," one vendor explained, tracks the demographic characteristics of a geographic area and creates a merchandising program to appeal to that market. Toys is not yet part of the traiting program but it is a likely addition now that Wal-Mart is reportedly looking for ways to improve its toys program.

By all measures, Wal-Mart's toy department is larger than other discounters' offerings. Typically, Wal-Mart offers 2,000 skus of toys on a year-round basis, more during Christmas and in the summer when such seasonal products as water and sand toys, swing sets and assorted warm-weather toys are in big demand. The Middletown, N. Y., store, typical of what Wal-Mart is installing in markets throughout the Northeast, measures roughly 2,500 sq. ft. and is located adjacent to sporting goods and seasonals.

A trip to the recently opened store also revealed the sharp pricing program and a merchandise mix that plays to the chain's strengths. On the very popular Cozy Coupe Car by Little Tikes, Wal-Mart was priced at $42.96 compared to $49.99 for Caldor and Bradlees. On the Milton Bradley game Chutes and Ladders, Wal-Mart priced the item at $5.97 compared to $6.99 each at Caldor and Bradlees.

Overall, Wal-Mart's merchandising program and basic assortments are similar to those of its toy competitors. The program is overwhelmingly brand oriented with all the key toy labels included. The department features long runs of toys and few signs. The area is amply lighted, clean and neat, with the shelves consistently well stocked. Nothing in the department is visually embellished.

However, the sales receipts for toys are compelling. According to Wal-Mart, toys and sporting goods account for 10% of the company's total discount store sales, or about $3.9 billion. DSN estimates that toy sales account for at least half of that amount, or $2 billion from the chain's discount stores. Any sales of toys recorded by the Wal-Mart supercenters and Sam's Club divisions would only serve to strengthen Wal-Mart's power in the toy business.

Wal-Mart does have its weaknesses. A recent Leo J. Shapiro & Associates/DSN study revealed that shoppers in Stockton, Calif., think of Kmart and Target before Wal-Mart when it comes to toys. When asked where they would go if they were going to buy a toy, a quarter (25.5%) of the respondents said Kmart, a fifth (21%) answered Target and 19.5% said Wal-Mart. Stockton is a new market for Wal-Mart and the chain does not dominate in California like it does in other states. The story is different in markets wliere Wal-Mart is a long time player like St. Louis. A previous Leo J. Shapiro & Associates/DSN study there showed that Wal-Mart was the overwhelming choice for toys among shoppers. The largest percentage of respondents pick Wal-Mart, 26%, as the first or second choice of outlet for buying toys, followed by Kmart and Venture, each tied at 17% and then Target, 10%.

Being No. 1 apparently isn't good enough for Wal-Mart. The chain is working diligently to improve its financial performance and merchandising savvy through a variety of programs, vendors report. Among these are improved partnership arrangements with vendors, service contracts with manufacturers, systems upgrades, and, eventuany, micromarketing.