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Wal-Mart Aims to Hold Onto New Recession Customers by Going Upscale -- Just a Little

Wal-Mart has been one of the few winners in this 18-month recession (along with McDonald's) thanks to what economists call the "trade-down effect": Instead of shopping at Target during a recession, folks who've never gone to a Wal-Mart now shop there because it's cheaper.

Wal-Mart's challenge now is to hold onto those new customers as the economy gets better. Why? Because they spend about 40 percent more than Wal-Mart's pre-recession customers.

More than half of Wal-Mart's new customers live in households that make more than $50,000 per year, which is significantly higher than Wal-Mart's typical customer, one in five of whom does not, for instance, have a bank account.

According to this Associated Press story, Wal-Mart is in the middle of a system-wide renovation of most of its 3,500 stores in the U.S. at a cost of at least $1.6 billion.

In addition to widening aisles, improving lighting and creating better sight lines by lowering shelves, the world's largest retailer (and the U.S.'s largest grocer) is adding better brands, such as Danskin and the new Palm Pre smart phone.

Even though Wal-Mart has fared much better than almost every other company during the recession, shares of its stock are down about 14 percent over the past year (as compared to 30 percent for the Dow).

So investors want to see Wal-Mart moving forward and maintaining its momentum. Hence, the slightly upscale makeover.

Here's the question: Even after the recession ends, there will still be poor people in the U.S. who need to buy groceries, clothing, school supplies and other staples. Will they find the new Wal-Mart out of their reach, both cost-wise and image-wise?

If so, would this open an opportunity for a new downscale retailer to occupy the place where Wal-Mart began?

-- Frank Ahrens
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By Frank Ahrens  |  June 23, 2009; 4:55 PM ET
Categories:  The Ticker  | Tags: McDonald's, Target, Wal-Mart  
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