Wal-Mart (WMT) may be the world’s #1 retailer, but it seems to have an inertia problem these days. The Wall Street Journal says the “Wal-Mart era” is waning, thanks to the U.S. consumer’s shift away from a down-market discount shopping:
The company’s unquenchable thirst for scale has been the secret to its market-changing power. “What we are is a ‘supercenter’ with one-stop shopping,” said Wal-Mart’s Vice Chairman John Menzer at an investors’ conference last month. The company expects each year to build another 170 to 190 of the 200,000-square-foot supercenters that are its hallmark and convert 500 smaller discount stores to the bigger format over the next five years. “We would love to wave a magic wand and [make] every one of our discount stores a supercenter,” he says.
But that very focus on scale is now a weakness, for the world has changed on Wal-Mart. 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.
Meanwhile, on Blogging Stocks, 24/7 Wall Street partner Douglas A. McIntyre had this to say about the Journal‘s piece:
That all may be true, but it also misses part of the point. Wal-Mart’s sales have hit a mediocre patch during one of the greatest economic expansions of the last several decades. The rise in home prices and improving wages made the consumer feel a bit richer. He wanted a better shopping experience. He could afford better stuff. His home equity loan let him buy nicer clothes, a new car, and some up-market furniture for his house.
But, that era of prosperity may be ending now. Consumers may well begin to look for bargains. They may need them to stay in the game when their variable rate mortgages reset at higher interest rates
The low cost of shopping at Wal-Mart will be back in style. The consumer is starting to feel pinched.
Lately, Wal-Mart has at least tried some new tactics online. The retail giant’s ratings and reviews campaign seems to have been a hit. But its attempt to capture a younger crowd with a Facebook campaign resulted in backlash, and may not have helped its image.
What do you think? Is the U.S. consumer witnessing the death of discount? Or is this just another brick in the wall for Wal-Mart?