The Wal-Mart Weekly: A retailing era in decline?

Growth peaks and then slows for Wal-Mart

Wal-Mart has been around for more than three decades, but the retailer really became a prominent icon in the American landscape in the 1990s when the standard discount store started being replaced by the "everything under one roof" supercenter strategy. From the early 1990s to today, Wal-Mart grew from a regional retailer in the U.S. to the largest overall retailer in not only this country, but the entire world (by revenues). There has never been a more rapid ascent in any industry anywhere in the world from my point of view. Wal-Mart defines commerce in the U.S., but with all that growth came problems that are now starting to surface.

For one, that growth was so poorly managed that the discipline needed for consistent performance is starting to wane. How can Wal-Mart grow at double-digit rates when there's a retail location almost everywhere you look? Unless the salaries of Americans have doubled, per capita, in the last decade, there's a point of market saturation that starts to show itself. But, alas, Wall Street's greed for "double-digit growth" never wanes, and Wal-Mart's $345+ billion annual sales take starts to slow down. Remember, a 4% growth rate for Wal-Mart in any given year equates to over $13 billion. That's billion with a "b" -- but it's still single-digit growth, right? That gives you the mentality idea and unceremonious expectations faced by the retailer in this day and age.

The company life cycle curve -- where is Wal-Mart at on it?

The Wall Street Journal states that more and more shoppers are shunning the "always low prices" of Wal-Mart and are shopping more at the competition. Indeed -- Target Corporation (NYSE: TGT) has seen quarter after quarter of growing same-store sales growth and is widely considered to be the hipper, cleaner, neater retailer when sat side-by-side with Wal-Mart. Target basically goes after the same customer, but markets itself as the more upscale of the two and downplays the "pricing" angle that Wal-Mart still clings to after all this time.

Are shoppers tired of clogged parking lots, aisles and checkout lines in Wal-Mart Supercenters? Most likely, yes. Does that mean the retailer's era of supremacy is over with? Well, that depends on how that is defined. Wal-Mart changed the retail game long ago, from creating more buying strength for hundreds of millions, to keeping the inflation rate in check -- and it still has a hand in those areas.

Customers, have somehow found themselves more empowered in the 21st century, though. The relentless focus on Wal-Mart as a "Main Street Killer" and a ruthless competitor helped put a few initial black eyes on its corporate face, and the shift from American vendors and goods (during Sam Walton's tenure) to Asian sourcing for nearly every non-food item it sells (post-Walton) signaled the end of Wal-Mart's genuine American roots for countless pundits. It's only gotten worse in the last few years.

The competition strikes back against the empire

Some retailers just decided to quite and cede to the all-powerful Wal-Mart, but many began playing off the retailer's weaknesses and offering products and services that Wal-Mart either was not willing or was unable to provide. I've mentioned Target before, but even national pharmacies have been decently successful against Wal-Mart in the last decade or so (although there's been quite a bit of consolidation in the last three years). The growing playing field made Wal-Mart still a desirable place to do business with when it came to vendor relationships, but the iron grip Wal-Mart had on vendor terms, volume and pricing began to slip. Capitalism breeds competition, and this has been demonstrated perfectly in the case of every-other-retailer vs. Wal-Mart in recent times.

Does quality rule or does price? That is the question that many a shopper found themselves asking after being fed up with putting up with so much only to save money when it came time to check out. Target arguable provides a much more attractive shopping experience in many ways that count to the consumer, and have private label brands that look "rich" compared to the dollar-store presentation of Wal-Mart's private label brands like "Sam's Choice" and "Great Value." That speaks to consumers on many levels.

Pick up an "Archer Farms" product in Target and how does it feel? My guess is that it exudes way more customer confidence and quality than many national brands do, and miles ahead of Wal-Mart's store brands. And, that's only looking at grocery items. Target's apparel and houseware category presentations have been at the head of the line in regards to discount retailers for some time. Not as good as Dillard's, but not even close to how shabby the presentation can be perceived in the same categories at a local Wal-Mart.



Personal, custom experiences are starting to rule the retail day

Customers are driven now by choice and custom options, and the big-box mentality of Wal-Mart just is not causing old (and new) customers to select the retailer for all their shopping any longer. One Wal-Mart is just like all the others (or at least, that is the perception) and in an age where every person has custom ringtones and faceplates for their cellphones, that level of personalization is also required on a shopping trip -- low prices be damned. That's Wal-Mart's main problem, along with having too many stores in a crowded domestic landscape. International operations (yet) aren't setting the record books on fire as well. So, we have a stagnant retailer in terms of where it is on the life cycle of the company.

Wal-Mart has little choice but to change to how customers want to shop (niche category arrangements and custom environments) or it may indeed see the end of any recognizable growth and will be seen as a cheap merchandise clearinghouse of sorts, but not much else. Can the company turn itself around? That's like re-arranging deck chairs on the Titanic to many industry watchers. That crystal ball is still showing an unknown future to me, though.

Have a great weekend and stay tuned right here next week for another edition of The Wal-Mart Weekly.