In December of 2024 amid the usual array of commodity items on Walmart.com, there was one conspicuous product listing that immediately caught the Internet’s attention. For under $100USD Walmart shoppers could purchase a handbag that bore an uncoincidental resemblance to the storied Hermès Birkin bag which, if it were the genuine article, would carry a price tag of at least $10,000USD assuming, that is, that you had the money and the requisite Hermès purchase history to lay your hands on one. Hermès restricts the sale of these bags to no more than 2 bags per person per year.
But the buzz surrounding the Birkin dupe (dubbed the Wirkin) was merely a little PR prelude to a much more serious and calculated strategic gambit on Walmart’s part.
On January 16th of this year, the company announced a partnership with Rebag, a U.S. online reseller of luxury goods ranging from Cartier bracelets to authentic Birkin bags. While the story generated opinions from all sides on the partnership’s chance of success, few seemed to appreciate that this move by the world’s largest retailer was in fact a signal of an enormous and deepening problem for both Walmart and the U.S. economy. A problem that can better be understood by looking back 35 years.
Project (Negative) Impact
Through the 1990’s Walmart’s growth was on fire; their stock jumped a dizzying 1,173 percent within the decade. Like the Roman army, Walmart rolled out across the American landscape using the massive Supercenter format as its weapon of choice. The company opened hundreds of Supercenters across the U.S. and in the process laid waste to untold numbers of local independent and specialty retailers as well as mid-sized regional chains.
By the 2000’s however, it was a different story. Walmart’s growth slowed and, with the devastating effects of the Great Recession, the company’s stock was down 24 percent. It was here, in the smoldering aftermath of the financial crisis, and under intense shareholder pressure, that Walmart hatched a plan. A plan that would ultimately prove ironic in its naming. A plan called Project Impact.
With Project Impact Walmart sought to upgrade its customer experience by reducing clutter in its aisles, paring down SKU counts, and brightening up its stores. In essence attempting to mimic its archrival Target which was, with smaller store footprints, trendier product assortments and cleaner merchandising, generating higher average gross profits than Walmart, and most importantly, attracting a higher-income shopper.
Walmart, on the other hand, had a “poor-people problem”. A problem it believed emulating Target could fix. With brighter, more welcoming stores, Walmart was looking for a wealthier, white-collar shopper, one less brutalized by the previous two years’ economic cataclysm. Throughout 2009 and 2010 Project Impact rolled out across 600 U.S. stores. At the time, one industry analyst confidently suggested that Project Impact would “be the catalyst to wipe out a second round of national and regional retailers.”
America’s largest retailer was being pulled under by a drowning consumer.
Much to the shock of Walmart executives, however, not only did profits not rise in renovated stores, but in fact company sales plummeted by an estimated 1.85 billion dollars. The new-look stores did not attract Target customers to Walmart. And to make matters worse they appeared to disenfranchise Walmart’s existing shoppers altogether, who perceived the upgrades as a signal that Walmart was no longer their store.
Walmart found itself stuck in a nightmare scenario. And the root issue wasn’t the appearance of its stores. It was the dire financial condition of its core customers, a condition that Walmart itself had contributed to. And one that was now coming back to haunt them. America’s largest retailer was being pulled under by a drowning consumer. A consumer that Walmart, and retailers like them, had thrown into the economic deep end without a lifejacket.
We Sell for Less
From its beginning in 1962, Walmart founder Sam Walton was singularly intent on making Walmart into a price-focussed juggernaut, squeezing out costs from every crevice of the operation. From mercilessly beating up U.S. suppliers for the lowest prices to paying the meagerest wages possible to its store workers, by exploiting every employment law loophole it could find. And with all of it the brand sent a clear message to the entire market – Don’t fuck with Walmart. When U.S. suppliers, many nearing bankruptcy, failed to meet Walmart’s ever-greater need for lower costs, the company immediately looked abroad to foreign supply. By as early as the mid-1980’s, some estimates put Walmart’s percentage of imported goods at 40 percent.
As Walmart grew, so too did the percentage of imported goods it sold to Americans, moving increasing purchases to Chinese manufacturers. And as the Chinese manufacturing sector exploded, the American manufacturing sector imploded, pushing many Americans from the middle class into the working class or underclass. The Walmart shopper of 1962 was the beneficiary of a rising tide of wages, benefits, union protections and personal savings. The Walmart shopper of 1982 was increasingly financially stressed, indebted and insecure in their futures.
If you’re a retailer today your customer either holds the money or carries the debt.
By the 2000’s upwards of 80 percent of the goods housed in the aisles of Walmart were made in China. Mirroring the import filled shelves of Walmart, the U.S. economy shed 33% of all jobs in the manufacturing sector between 2000-2023, severely limiting employment prospects for those without a college education.
The result is that while Walmart has grown, the company and the operating strategies it popularized have had a devastating impact on the very middle class that Sam Walton aimed to serve with low, low prices. By wiping out much of America’s blue-collar workforce, Walmart had wiped out the economic prospects of generations of its own customers. To put it in Walmart-speak, it was a massive economic “roll-back” at the expense of America’s middle class.
Arsonist Turned Firefighter
In seeming recognition of this, Walmart has recently been working to undo some of the damage it caused. In 2020 the company, stung by the broken Asian supply chains of the pandemic, pledged to repatriate a percentage of its purchasing power with U.S. manufacturers. Had the pandemic never happened, it’s anybody’s guess whether Walmart’s sudden rush of commercial patriotism would have happened at all. But even if accepted as sincere, it remains to be seen how much of Walmart’s merchandise will come from domestic manufacturers (or what’s left of them) and how such a move would upset Walmart’s price led positioning.
In 2024 the company also began raising both starting wages and store manager compensation levels in its stores. Time will tell if these measures are enough to breathe life back into an American middle class on life-support.
The Joneses Don’t Live Here Anymore
In a broader sense, this hollowing out of the once robust middle class has also resulted in the evaporation of what used to be known as the aspirational consumer class. These were consumers who would squirrel away their savings over time, with the plan of one day owning a luxury car, upscale appliances or perhaps a designer handbag. There is no longer such a consumer. If you’re a retailer today your customer either holds the money or carries the debt. There’s little life left in between.
This shift is not lost on luxury brands, who seem clear-eyed in the reality that their futures are now wholly dependent on the fortunes of the wealthy. Since 2019 prices for luxury goods have risen by upwards of 50-60 percent eliminating any feasible entry point for the average consumer. When it comes to luxury today, you can either afford it, or you can’t – even at Rebag’s prices.
And so, this gambit with Rebag is yet another attempt by Walmart to extricate itself from the sinking fortunes of the American underclass, while perhaps doing so in a less risky way than in 2009. The real question is whether there’s any remaining buying power between the Wirkin-Class and the Wealthy to make this bet pay off.
About the Author
Doug Stephens is the Founder and CEO of Retail Prophet, and widely regarded as one of the world’s foremost retail industry futurists. His creative and intellectual work have influenced the strategies of global brands including IKEA, Nike, Coca Cola, Louis Vuitton, and L’Oréal.
He is an international bestselling author of three books on the future of retail including his most recent, Resurrecting Retail: The Future of Business in a Post-Pandemic World. Doug is also an in-demand speaker on the future of retail.
Doug is also a nationally syndicated retail columnist for CBC Radio and sits on multiple corporate and academic advisory boards, including the David Sobey Centre for Innovation in Retail at St. Mary’s University.
His unique perspectives on retail and consumer behavior have been featured in many of the world’s leading publications and media outlets including The New York Times, The BBC, The Business of Fashion, The Wall Street Journal and Fast Company.