Jennifer Marks

WSJ sticks fork in Wal-Mart
October 3, 2007

The headline on page 1 of today's Wall Street Journal (sub required) couldn't be more devastating: "Wal-Mart Era Wanes Amid Big Shifts in Retail."

The piece essentially argues that Wal-Mart's days as the most influential retailer in the United States are over, and compares the company to other deposed corporate leaders such as IBM, General Motors and Microsoft.

Here's their take on what's happened:

"In some ways, Wal-Mart's loss of clout is a reflection of a more fragmented world. Retailing is a mirror to how we live and work. Big-box stores thrived by selling highly recognizable national brands, which themselves were fed by two phenomena: the growth of mass media and freeways, which encouraged large stores in remote areas. Stores and brands together achieved scale efficiencies that allowed them to overwhelm local chain stores and regional brands.

But the Internet is transforming the retail definition of scale. The once-stunning compilation of 142,000 items found in a Wal-Mart supercenter doesn't seem so vast alongside the millions of products available on the Internet. At the same time, the cost of creating and sustaining a national brand is rising because of media fragmentation. Niche brands, created by Internet word of mouth, are winning shelf space and sapping profits required to fund big brands' advertising. Manufacturers such as Apple Inc. and Phillips-Van Heusen Corp., lacking the retail distribution or presentation they crave, are opening their own stores. One result is that retail giants hold less sway over their customers -- and over their suppliers."

I don't think you'll find many home textiles suppliers agreeing to the notion that large retailers hold less sway over their suppliers than they did previously. And the WSJ piece notes that Wal-Mart dawrfs the competition in terms of size, revenue and sheer profit volume.

As for some the stumbles highlighted in the piece -- particularly the company's retreat from Germany, South Korea and the widespread rollout of RFID tags -- it's worth noting that Wal-Mart's corporate culture has long embraced failure as an inevitable component of learning how to succeed. 

One need look no future for a potent example of that maxim than the 1987 launch of Hypermart USA. The concept flopped, but it taught Wal-Mart a great deal about fashioning a large-format food/general merchandise store, lessons that were applied to today's 2,300+ Wal-Mart Supercenter units.

It also bears noting that Wal-Mart has barely begun to scratch the surface internationally. Eleven years ago, then international division chief Bob Martin predicted Wal-Mart would one day operate more stores in China than in the United States. (At the end of the most recent fiscal year, it had 73 stores in the country.) Then there's India, where Wal-Mart plans to open its first cash-and-carry store by the end of the year. Officially, the venture envisions 10 to 15 such units over the coming seven years -- a pace I'd bet will be accelerated should the venture prove out.

Also, as the other story out today on Wal-Mart demonstrates, the company can grow internationally beyond retail. Wire services are reporting that Wal-Mart de Mexico has cleared Mexican regulatory requirements and could open its first Banco Wal-Mart de Mexico Adelante as early as next month. So far thwarted from opening banks in the United States, Wal-Mart is taking the operation south, where an estimated 8 in 10 Mexicans can't afford to open accounts in traditional banks. Talk about a potential new revenue stream!

Certainly, it is in the nature of behemoths to wear themselves out. But even a wounded pup can hang around for a long time (see Sears), and Wal-Mart's not a wounded pup.

Wal-Mart may be experiencing a mid-life crisis, but I think it's got a lot of life left in it.

Posted by Jennifer Marks on October 3, 2007 | Comments (0)