Wal-Mart Still a Force

Discussion
Oct 04, 2007

By George Anderson

A piece in The Wall Street Journal yesterday,
Wal-Mart Era Wanes Amid Big Shifts in Retail
, points out that a number of suppliers are seeking ways to lessen their dependence on the world’s largest retailer by working with other retailers.

While this and other elements of the piece may be factually correct, the tone of the article suggests that Wal-Mart is a lumbering giant that is being outmaneuvered at almost every turn by smaller competitors.

The article’s author, Gary McWilliams, writes that Wal-Mart gained its advantage (economies of scale) and point of difference (low prices resulting from that scale) to drive it to the top of the retailing hill. Now, however, he suggests that Wal-Mart’s emphasis on scale has put it at a competitive disadvantage.

According to Mr. McWilliams, “The big-box retailing formula that drove Wal-Mart’s success is making it difficult for the retailer to evolve. Consumers are demanding more freshness and choice, which means that foods and new clothing designs must appear on shelves more frequently. They are also demanding more personalized service. Making such changes is difficult for Wal-Mart’s Supercenters, which ascended to the top of retailing by superior efficiency, uniformity and scale.”

Burt P. Flickinger III, managing director of Strategy Resource Group, told The Journal that suppliers are increasingly looking to regional grocery store operators and the national drugstore chains to promote and move product.

“Four of the top 10 consumer-products companies say they can move merchandise faster with Walgreen and CVS,” according to an estimate by Mr. Flickinger.

Discussion Questions: Has Wal-Mart lost some of its clout as suggested by The Wall Street Journal article or is this much ado about very little? Has Wal-Mart’s scale become an impediment to success in some respects? Are people within the retailing world making a mistake and underestimating Wal-Mart?

[Author’s note] While Wal-Mart has struggled (particularly when compared to its own historical performance), the chain, as The Journal points out, still dwarfs its competition globally and here at home. Worldwide, Wal-Mart sales are three times that of its next nearest competitor, Carrefour. In the U.S, Wal-Mart’s revenues are four-and-a-half times what Target brings in and four times Kroger’s sales.

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18 Comments on "Wal-Mart Still a Force"


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Mark Hunter
Guest
Mark Hunter
14 years 7 months ago

History always repeats itself. In the 1970s, McDonald’s was a juggernaut that people believed was going to take over the world and in time would be the only place to eat. Today, McDonald’s has never been bigger but they are viewed as just another big company and not the dominant player they once were. Wal-Mart is in the same place McDonald’s was 30 years ago, history always repeats itself.

Arthur Rosenberg
Guest
Arthur Rosenberg
14 years 7 months ago

Despite being an enormous and easy target (no pun intended) for negative press, Wal-Mart remains well ahead of the curve when it comes to initiating and financing supply chain efficiencies and sustainability.

Also, how many other retailers are known for being open 24/7? Visit a store any time after midnight and you’ll often find at least as many shoppers as you would see in most stores around 8PM. Try a weekend after midnight and you’ll see couples or groups strolling through the aisles filling their shopping carts, seeming to enjoy the experience. It’s almost a post date or event ritual.

Those late night/early morning hours create one of the few available destinations for the many people who are leaving work during those hours, denizens of the night and even campers crossing the country in their massive vehicles.

Wal-Mart is hardly an endangered species.

Mark Burr
Guest
14 years 7 months ago
This isn’t the first article of its hopeful nature and certainly won’t be the last. Just take a brief second and consider George’s note with the same level of significance and it ought give pause to the premise of the article itself and its notion. George’s comments are these: “In the U.S, Wal-Mart’s revenues are four-and-a-half times what Target brings in and four times Kroger’s sales.” As per ‘Supermarket News’ rankings, Kroger is number two and yet four times behind. Four times! Any one contemplating that the Wal-Mart era is fading or is over, does so at their own peril. That is not to say that a shift hasn’t occurred in retailing. The question is, has that shift really impacted Wal-Mart with the same significance that it has impacted other retailers? I think not, and not by a long shot. More significantly, when you look at and examine rankings, the most significant shift that gets much less notoriety is the impact of Costco on retailing. Consider their impact in the sense of the time period… Read more »
Craig Sundstrom
Guest
14 years 7 months ago

While it would be nice to spot a trend at its nascence–MS @ $1 anyone?–it’s seldom possible; and I agree with…well…everyone here that the article is somewhat of a “much ado:” exaggerating WM’s past upward and its future downward; (hopefully the article is not an omen of “WSJ Loses Relevance Amid Media Competition.”)

Of course, with all that having been said, it should be pointed out that WM has only a single-digit-percentage of U.S. retail sales: big, yes…but hardly the company store it’s often claimed to be.

Mark Lilien
Guest
14 years 7 months ago

Suppliers to retailers love it when chain stores grow their location numbers quickly. The suppliers show unusual sales increases due to “pipeline fill,” which is the extra merchandise needed to stock the store shelves in each new location. That extra shot of pipeline fill isn’t needed once the new location becomes a “comp” location (its one-year anniversary). Recently Wal-Mart made it clear that they will open few new stores in the U.S. because the return on capital became suboptimal. Return on capital is much higher for Wal-Mart De Mexico than Wal-Mart domestically. Too many locations = too much cannibalization (low comps, higher overhead). And shoppers haven’t abandoned Wal-Mart because of service complaints. It’s always been a self-service store, like its competition (Target, Kmart, etc.)

George Whalin
Guest
George Whalin
14 years 7 months ago

“Wal-Mart Era Wanes Amid Big Shifts in Retail”…Nonsense!

Anyone who seriously believes the Wal-Mart era in retailing is actually waning is delusional. With 6,775 stores around the world, the nation’s and world’s largest retailer continues to be the major force in moving merchandise and serving consumers. Yes, there are consumers who don’t shop at Wal-Mart as there are suppliers who prefer not to do business with the company. But any supplier who is looking to expose and sell their merchandise to the largest number of middle income consumers wants to be in Wal-Mart. The Pepsi product example in The Wal-Street Journal was simply not valid since the product was not geared toward the needs of the Wal-Mart customer. And anyone who compares the Wal-Mart customer to the Whole Foods customer doesn’t really understand retailing or the consumer marketplace.

Mel Kleiman
Guest
14 years 7 months ago

I see more comments on this posting then anything I have seen in a long time.

If you want coverage, present something that most people think is far out and they will have a reaction. That is just what happened here–great coverage on an article that really contained no meat. Yes markets change, buyers are fickle, suppliers come an go and so will Wal-Mart but not just yet. They are great at trying new things. Some will make it and some will fail but they keep reinventing themselves.

Yes, life is tough when you are the biggest target around. But challenge is good.

Camille P. Schuster, Ph.D.
Guest
14 years 7 months ago

I agree with Ben Ball–Wal-Mart has lost its cache, not its clout. Certainly Wal-Mart continues to do a tremendous amount of business and often buys more products from a manufacturer than any other retailer. Wal-Mart found a great niche and developed a level of efficiency that has been the leader for years. With that level of efficiency Wal-Mart can move quickly when they make a decision to move. However, they also do testing of ideas and products before rolling them out everywhere in many cases.

Consumers change over time. The big question facing Wal-Mart is are they responding to changes in their core, valuable consumers or are they trying to go after new consumers at the expense of their core, valuable consumers?

jack flanagan
Guest
14 years 7 months ago

There is absolutely no inherent reason why Wal-Mart cannot resume a more robust percentage of growth.

It is (and, yes, on occasion has actually made itself) an attractive target for many constituencies that are not looking out for the customer.

I worked for an enterprise that was competing directly against Wal-Mart in the mid 1980s. The boss I worked for then, when shown their steady inroads into some of our key markets, commented that they had to ‘hit the wall’ sometime. 20 years later and they’re still doing acceptably well.

There are some strategies that these guys can and ultimately will employ that will get them back on the growth track.

Ben Ball
Guest
14 years 7 months ago

Wal-Mart has lost its cachet–not it’s clout–and they are not the same thing.

Pundits are tired of writing about Wal-Mart and how to attack it, so now they write of other successes and call it Wal-Mart failure–again, they are not the same thing.

It is great fun to write about huge growth percentages at new formats–it is boring to write about 1.3% growth at Wal-Mart. But, one last time, they aren’t the same thing–do the math.

Dan Gilmore
Guest
Dan Gilmore
14 years 7 months ago

I studied the “wheel of retailing” 20 years ago in grad school, and haven’t seen anything that said this concept was dead. As Wal-Mart tries to move upscale in many categories, from food to fashion, it would seem to fit here as well, with similar ultimate results.

Wal-Mart is and will be a huge force. The point of the article, which I think is correct, is that the retail world is changing from the Wal-Mart era of 1995-2005, and that’s not at all unexpected.

The Dell era as we knew it is over too. Things change, competitors catch up….

To everyone but Procter & Gamble, at least.

Ryan Mathews
Guest
14 years 7 months ago
Forty percent of the top 10 CPG companies think they can move merchandise faster through Walgreens than Wal-Mart–have they all wandered into the poppy fields together? Look, Wal-Mart is a victim of its own success. It’s hard to keep up a record of double digit improvement in comp store sales forever. And, it’s also clear that like any organization its size, Wal-Mart has its share of ghosts in the closet. But, that said, I see no argument for starting to make funeral arrangements quite yet. The larger you are the harder it is to move at full scale. That’s why independent operators have an inherent operational advantage over the Wal-Mart’s of the world. But again, it would be a mistake to think that Wal-Mart is collapsing. As perhaps more than one RetailWire commentator knows too well, you move a little slower in your maturity than you did in your adolescence–partially because, carrying a tad more bulk, you’re not as agile as you once were and partially because you’ve learned a thing or two along the… Read more »
David Biernbaum
Guest
14 years 7 months ago
The Wall Street Journal article “Wal-Mart Era Wanes Amid Big Shifts in Retail” makes the point that a number of suppliers are seeking ways to lessen their dependence on the world’s largest retailer by working with other retailers. My response: “DUH!” Good grief, this has been the case since the mid 1980s. • The tone of the article that Wal-Mart is being outmaneuvered at almost every turn by smaller competitors; it’s absurdly exaggerated but of course it makes for good press. Hmm, I had to buy an online subscription to the WSJ in order to read it, and hmm, we’re talking about it this morning, are we not? • I agree that consumers are demanding more freshness and choice, and some are favoring more personalized service, but not necessarily at higher prices. I’m not defending Wal-Mart here in as much as I’m defending the reality that consumers don’t always put their money where their mouths are. Fortunately or unfortunately, depending on your own interests, price still matters a lot to consumers, and Wal-Mart has firmly… Read more »
Raymond D. Jones
Guest
Raymond D. Jones
14 years 7 months ago

The Wall Street Journal article chronicles how Wal-Mart has grown to a retail giant based on operational efficiency and massive scale. It also properly points out the weaknesses associated with this scale.

The retail landscape is littered with former giants that lost their way and are now afterthoughts in the marketplace. Retailers, like other businesses, have a life cycle of introduction, growth, maturity, and decline.

To a great extent, Wal-Mart is experiencing the pains of its own success and maturity. It is difficult, if not impossible, to keep up high growth rates when you are already huge. It is hard for a giant to be nimble.

However, it would be a clear mistake to start predicting their demise or underestimating Wal-Mart as a competitor. They will continue to be the dominant retail force during the foreseeable future.

David Livingston
Guest
14 years 7 months ago

I agree with Raymond above. Don’t underestimate Wal-Mart. A slow growing Wal-Mart still equates to billions and billions of of new sales each year. Wal-Mart still has some tremendous growth opportunities in the USA. Sometimes I think Wal-Mart likes articles like this because it gives the anti-Wal-Mart extremists some false hope that they are winning. Sometimes articles like this are motivated by those who are frustrated by Wal-Mart’s low stock price. I think some investors have forgotten that Wal-Mart couldn’t care less about their stock price and the the company is run by some good ‘ol boys from Arkansas and not Wall Street analysts.

Michael Tesler
Guest
Michael Tesler
14 years 7 months ago

We are in that nether world of perception and reality. Reality is that Wal-Mart is the largest and most successful retailer ever (in dollar terms), and while it is maturing and growth is slowing there is still no one close to them in dollar terms (and isn’t that clout in the market terms as well?). However, the public and the media like Target better (perceptually) and because of it size Wal-Mart is a bad publicity magnet, and because of its size consumers who are in general ‘anti corporate’ are prone to believe all the bad publicity. Unions are feeding the “negative” because Wal-Mart is the prize they have been seeking and failing to get for years. To many Wal-Mart just can’t win and these negative forces have slowed their momentum but though “perception is reality,” it is also true that “numbers do no lie” so I am caught between two cliches in the nether world between perception and reality.

Kai Clarke
Guest
14 years 7 months ago

Wal-Mart is clearly the dominant force it was (and continues to be). It is not a stumbling giant, but instead one which is a bit slow to respond to all of the environmental changes in all of the regions in which it competes. However, that does not make it an ineffective one. Wal-Mart’s sales and successes continue to show that it is an effective retailer, and one which is morphing to reflect the many markets in which it competes.

There are many which continue to foretell of Wal-Mart’s demise based upon a few successes of small regional players. However, this is faulty reasoning when comparing this to the enormity of the playing field, and the continued growth which Wal-Mart exceeds, quarter after quarter.

Susan Rider
Guest
Susan Rider
14 years 7 months ago

Wal-Mart is a victim of being on top! And…as in many situations when you are on top, you are very vulnerable to all the arrows of life. Wal-Mart has come a long way from their meager beginnings and has added much value to communities, shareholder profits, supply chain/retail vision and philanthropic areas. They have been copied and watched by the best.

Is the article true, are they reaching the downhill slide of their lifespan? I don’t think so. They are fighting in the trenches on a couple of fronts but they will execute from a level of strength and out perform in the future. The one thing Wal-Mart knows that others tend to forget is that there are two ingredients to success necessary for long term viability: passion and execution.

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