Welcome to the 26th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions and just a bit of everything else when it comes down to a very hot topic these days: Wal-Mart. Last week we wondered whether Always Low Prices was just a myth in today's competitive climate.
This past week, I discussed Wal-Mart (NYSE: WMT) Stores, Inc.'s entry into the non-protected digital music file download business. With the retailer selling non-protected songs from its website for a maximum of $0.94, will this action dent into Apple (NASDAQ: AAPL)'s iTunes market share? Who knows at this point.
Wal-Mart has been in the news quite a bit this past week in regards to a European competitor entering a market Wal-Mart is already in (just not in a big way) -- California. Tesco (LSE: TSCO) said it will be opening smaller-concept stores soon that feature the opposite of the big-box retail feeling of the standard 100,000-square-foot Wal-Mart Supercenter. Tesco's stores will average about 10,000 square feet. What will Wal-Mart do in response?
It's time to re-examine the large-format, big-box store
Wal-Mart made the term "big box" popular among the retail elite back in the early 1990s when it began switching from a standard discount store format (which was already large) to the newer "Supercenter" format that featured an expanded discount-merchandise offering as well as a full-service grocery store, auto care center and home-and-garden center (among other sections).
Wal-Mart grew from where it was in the 1990s (a $30 billion retailer) to the world's largest retailer with sales approaching $350 billion a year, on the back of the American consumer. U.S. customers just loved shopping for everything they could ever need under one large roof, as Wal-Mart defined one-stop shopping.
As the company grew, it was able to muscle larger and larger discounts from just about every supplier, and constantly offered lower prices than the competition. Customers were more than hooked -- they became addicted to the sheer merchandise selection and unbeatable prices -- all under one roof.
Retail times do change
Well, Wal-Mart's one-stop shop concept worked fabulously for quite a while -- more than 13 years. While the company's growth has not stopped really, it has slowed dramatically in its largest market, the U.S. While more nimble competitors like Target Corp. (NYSE: TGT) continued to grow, Wal-Mart's enormous size meant that it had to do more to "grow" in the eyes of the financial market. With Wal-Mart shares having moved very little in five years, shareholders and analysts have wondered quite a bit recently how the company can continue to deliver now that the big-box concept it basically developed has grown stale.
Don't tell Target this, though. The company is rolling out newer "SuperTarget" stores that are very similar to Wal-Mart Supercenters. The main difference on why Target's concept works revolves around superior marketing. Its corporate color is "action" red, its stores are noticeably cleaner than Wal-Mart stores, the merchandise displays are arguably more refined and better displayed, and its house grocery brands more quickly reflect the growing customer appetite towards healthier foods.
Wal-Mart's concepts have changed very little in the Supercenter category, and customers have noticed. Result? They've moved to other retailers like Target for general merchandise and Best Buy, Inc. (NYSE: BBY) for consumer electronics. Both retailers have evolved their store formats over time to acclimate to changing customer tastes and merchandise trends. Wal-Mart has been the laggard in this respect for a long, long time.
Are different store size formats the answer?
To a company that literally defined the cutting-edge logistics to know what items to stock before customers even bought them, the change from a "one size fits all" store format like a Supercenter to a more custom approach that revolves around specific communities and demographics has to be painful. Yet, this is what Wal-Mart may have to do in the near future.
Target's SuperTarget stores will remain formidable competition in the big-box retail format, and newer competition from global competitors like Tesco may make Wal-Mart look at several different types of store formats, depending on the specifics of the region where any Wal-Mart store is located. With regular discount stores, Supercenters and possibly even small-format stores on the horizon, Wal-Mart indeed needs to re-think its merchandising strategy moving forward. Either that, or the competition will take advantage of it. It's odd to think of Wal-Mart as being in a defensive position, but that's right where it is right now. Whodathunkit?
It'll be interesting to see a Wal-Mart the size of a CVS or Walgreen's location in the near future, but I see this happening in markets where a smaller format makes sense. From a purely business perspective, not having a ton of merchandise may slow sales, since inventory turns are the oil that greases Wal-Mart's overall cash machine. The less inventory, the less than can be turned.
Conversely, the retailer may have much better luck in municipalities and communities that have shunned it before if it re-establishes communication with these areas in order to pitch smaller store formats to these areas -- many which are concerned about a whole host of issues a 100,000-square-foot retail location can unleash. If Wal-Mart can open more stores in areas where it had previously been unsuccessful, perhaps the sales from those newer, smaller stores will make up for the lack of inventory.
Join me next week for another edition of The Wal-Mart Weekly. Until then, have a great Labor Day weekend!
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Reader Comments (Page 1 of 1)
8-31-2007 @ 9:24AM
ROBERT BAN said...
I have been expecting Walmart to begin offering a limited amount items with improved style and quality in their stores for a segment of customers with above average gusto.
The Smartmart line !
9-04-2007 @ 11:14AM
Nick Pasquine said...
Small walmart's will not cut it. They put a neighborhood store in here. Is terrible. Poor selection, high prices and few cars in the lot.
9-10-2007 @ 5:39PM
JEFF EYER said...
WALMART IS A "PX", IF YOU WILL, FOR EVERYONE AND ANYONE. WHILE 100,000 SQ FT IS PERHAPS A LITTLE TOO LARGE, LESS THAN 75,000 (50?) MAY
BE AN ANSWER. REMEMBER, WALMART HAS BEEN DESIGNED WITH "MIDDLE AMERICA" IN MIND AND THIS IS WHAT WORKS!! PEOPLE DON'T NEED A "HUGE" STORE; BUT THEY NEED THE SELECTION AND THIS IS WHY THEY SPEND THERE, IN ONE PLACE: THEY RECEIVE A SELECTION AND DON'T HAVE TO TRAVEL FOR ALL THEIR SMALL NEEDS -- EVERYTHING IS ALL THERE, IN ONE PLACE.
THEIR OBVIOUS OBJECTIVE IS TO REDUCE THEIR INVENTORY TO WHAT IS REALLY NEEDED AND KEEP IT UNDER A SMALLER ROOF.
9-10-2007 @ 5:44PM
JEFF EYER said...
WALMART IS A "PX", IF YOU WILL, FOR EVERYONE AND ANYONE. WHILE 100,000 SQ FT IS PERHAPS A LITTLE TOO LARGE, LESS THAN 75,000 (50?) MAY
BE AN ANSWER. REMEMBER, WALMART HAS BEEN DESIGNED WITH "MIDDLE AMERICA" IN MIND AND THIS IS WHAT WORKS!! PEOPLE DON'T NEED A "HUGE" STORE; BUT THEY NEED THE SELECTION AND THIS IS WHY THEY SPEND THERE, IN ONE PLACE: THEY RECEIVE A SELECTION AND DON'T HAVE TO TRAVEL FOR ALL THEIR SMALL NEEDS -- EVERYTHING IS ALL THERE, IN ONE PLACE.
THEIR OBVIOUS OBJECTIVE IS TO REDUCE THEIR INVENTORY TO WHAT IS REALLY NEEDED AND KEEP IT UNDER A SMALLER ROOF.
9-12-2007 @ 2:18PM
fireftr23 said...
like jerry springer once said wallmart is the trailer trash shoping outlet
9-12-2007 @ 2:21PM
Paula said...
Wal-Mart will eventually go away. When I was a child and we first moved to California, there was a store called GEMCO, it was same concempt, one HUGE, one stop shopping, groceries, hunting, fishing, jewerly, cloths, gardenshop...Then in my early married years in the Seattle area there was Fred Myer, again, one stop all you need shopping. Then the explosion that is known as Wal Mart. cheap is good and frantic for a while, but like all else, greed gets the better of those that never know when it's time to stop and enjoy...and that what huge, fades away, when something new and "different" come your way.
9-12-2007 @ 2:23PM
LeahHighgate said...
I think WalMart made a HUGE mistake when they decided to abolish their layaway program. Families of all ages used it often and it was especially invaluable around Christmas time. If another major retailer would offer layaway, they'd take a big chunk of WalMart's Christmas profits away from them.
9-12-2007 @ 2:30PM
DAVID said...
WALMART HELPED SAVE OUR COMMUNITY BY PROVIDING MORE JOBS FOR THE PEOPLE THAT RECENTLY LOST THEM DUE TO LAYOFFS AND DOWNSIZING. IT REALLY IS NICE TO HAVE WALMART HERE IN OUR TOWN.NOW WE CAN FIND BETTER BUYS ON EVERYTHING THAT WE NEED.
9-12-2007 @ 2:36PM
Amanda said...
Wal-Mart will go down no matter what the size of their stores are. Worked there for 7 1/2 years, just up til last week. If they don't go back to focusing on customer service nothing else they do will matter. Pay better wages and treat your employees with respect and just maybe customers that aren't trash will come in to shop.
9-13-2007 @ 12:03PM
Carolyn said...
I don't know where your Wal-marts are, but the Wal-mart Supercenters in Alabama are immaculately clean, attractive places to shop.
Forgive me for not crying about Wal-marts cheaper prices. Before Wal-mart Supercenters, the local branch grocery stores could and did charge $5 for a bottle of steak sauce!
I LOVE Wal-mart!
9-12-2007 @ 2:50PM
Kp said...
Meijers in Grand Rapids Michigan started this format and is alot better than Walmart.
9-12-2007 @ 3:04PM
Byron Spain said...
Wal-Mart has two problems; too many shoddy Chinese products and little sensitivity to local tastes. Trying to sell Asian foodstuffs in a Latino dominated market is a classic example. To grow profitably, their best course of action is to Buy American, cater to local tastes and keep prices low.
9-12-2007 @ 5:02PM
Mike said...
I used to shop at WalMart, but then I got trampled during a Christmas eve special sale on DVD players and nearly died. All I remember was a big fat chick putting her Marlborough out on my forehead so I'd let go of my DVD player, then she stomped on my t*stickles and kicked me in the forehead! WalMart shoppers are so rude!
9-12-2007 @ 6:07PM
bernie said...
Interesting to read the comments by union folks who are a part of the anti-walmart campaign. The idea that Walmart is unpopular is insane. Why is it the number one retailer in America and the world? The answer is obvious. It gives people the merchandise they want at the best price. I just my evening chicken dinner for $4.49, which costs $6.99 at other markets.
9-12-2007 @ 7:07PM
crystal said...
Where I live, the bigger stores get all the attention. We are in a city packed with everything you can imagine and the people are moving in left and right. That creates quite the traffic congestion and let me tell you, any store that offers one-stop shopping is where it's hoppin'. Target is not that popular here; although their prices can be similar, they have very limited selection than Wal-Mart. K-Mart is practically out of business; Meijer has lousy prices on EVERYTHING; and Super Kroger grocery stores are too new and resemble Bigg's grocery stores (very limited on clothing and other household items). Wal-Mart wins in Mason hands down. The bigger the store, the better for us city lovers. I love their prices and selection. And the new SuperCenters have stayed clean, as they only have built them (here anyway) in upper-scale areas, not in the ghetto where no one cares about keeping a place looking nice and where theft is rampant.
9-12-2007 @ 7:18PM
crystal said...
Hey KP-the Meijer thing works in MI--it's where they began and that area owns rights to have like 20 Meijers in the same square mile (my hubby's fam is from there). There was only one Wal-Mart when I visited. [FYI they are as rude to their employees as Wal-Mart and every other minimum wage large chain; I know enough ppl that have worked there.]
In Ohio Meijer does NOT cut it. Sorry dude. Even my husband's family, who were devout fans of Meijer and refused to shop anywhere else for ANYTHING agreed that Wal-Mart and Kroger Grocery were much better here and they no longer shop at Meijer since they live here! Just an example, I paid $26.00 for a litter box at Meijer only to find Wal-Mart had the same one for $18! And Meijer brand food is so disgusting, I can't even save money trying to buy that from the store!
9-12-2007 @ 9:54PM
Mary JULIANO said...
I work for walmart and I love it they treat me royal I love my store and it's neat and all the associates are nice and the mgrs are great of course there are people who are rude I found them in Target and Kmart and even in Macy's and the malls , there is always someone who hates everybody and everything , so they complain it's love it or hate it walmart is the best thing to have happened.
9-13-2007 @ 3:51AM
Susan said...
I love to shop at my local Wal-Mart! It is a mile away from my house. Now they have to go and screw up my life and open a New Super Wal-mart 2 miles away and close my favorite store. I have arthritis and various other illnesses and I cannot shop at the Super Stores!! If I do go to any of the Super Stores I ride the carts, but the Super Wal marts never have any left for me. I only shopped once in a Super Wal Mart because of it. I usually leave, because they have no riding cart for me.