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Friday, Oct. 5, 2007 at 1:08 pm

Another Brick in the Wal-Mart Era?

By Robert Gorell
October 5th, 2007

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?

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Comments (7)

  1. To say that Walmart customers are looking for a better shopping experience and are willing to pay for it seems a bit over the top. The very nature of walking into Walmart is one of a consumer in desperate need of a break. Remember the country lives on three legs, wages, credit cards, and home equity lines of credit; all of which are heading towards a brick wall. Some see it-some don’t.

    Take a look at the recent credit crunch, as third party discount mortgage and home equity lenders brought pressure to bare on the economy the street realized that bad debt is looming on the horizon. Any blip in the radar Walmart is experiencing could be the result of people unable to even shop there, as opposed to demanding freshness or looking for something more upscale.

    Walmart is part an parcel of our economy not because we demand it, but because it meets, and will continue to meet a basic need which is to manage a family on a low budget.

    If you are shopping for groceries in a boutique West Village food store you might think it was a need for freshness keeping people out of Walmart, but if you are raising kids in the trenches NJ you might just be trying to widdle down debt.

    Just my opinion, I could be wrong.

  2. [...] | view source | [...]

  3. I’ve never liked Wal-Mart, but I honestly think that their business model of selling cheap, low-quality goods with massive economies of scale is aging and outdated.

    I think the Journal article is correct that consumers are demanding A. better service, and B. better quality.

  4. I think Wal-mart is feeling a pinch from other retailers who offer a better shopping experience, like Target. They are also discounters, but shopping there is more pleasant experience.

  5. It seems to me Wal-Mart’s biggest problem is that they’ve lost the positioning battle in the minds of the consumer. After all the bad news and controversy and scandals, they are associated with cheap and heartless. I suspect many people don’t like to shop there because of this, but tolerate it when they must because it’s cheap. But having your customers dislike you doesn’t seem like a good long term strategy, they’ll jump ship as soon as they have a better option. There’s no touchy-feely emotional connection with the brand. Compare with Target, which offers value but also hip and stylish image, without the anti-labor, locking-in-the-night-shift controversy which follows Wal-Mart.

  6. [...] know, I know… We've been blogging a lot about Wal-Mart lately. But there's good reason for that. We are in the midst of [...]

  7. Walmart is a despicable organization. Their use of Chinese products is degrading our national production. This is turn is imbalancing our economy. Look for the implosion soon!

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