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Wal-Mart, the world’s largest retailer, has not been able to sustain the growth that it maintained for so many years. The retailer grew rapidly, mainly with new store openings and a low-cost, low-price model, but now it must grapple with alternative ways to continue to grow.Wal-Mart drove down wholesale prices and then charged the lowest prices to its customers. With its strategy of selling high volumes, it could make up for its low margin on most products. The retailer also kept overhead low and refused to invest in fixtures and store design. In response to this successful model, competitors were forced to make their own logistics more efficient. Rivals such as Target chose not compete on price but rather took a different competitive outlook.

Target entered the cheap-chip market and today is a fashion destination for many consumers. Wal-Mart thought it could do the same thing but failed after confronting the longer lead times required for apparel. Its assortment also seemed too fashionable to Wal-Mart’s average size 14 female customer and had a limited selection.

At the same time, Wal-Mart’s low-price consumers have slowed their shopping because hourly wages for low-income families have remained the same while housing and energy costs have risen. Wal-Mart’s affluent customers still like to shop Wal-Mart for basic products like toothpaste, detergent, and other consumer items priced just above margin. But furniture, electronics, and clothing are not selling well at all.

Although Wal-Mart realizes that it cannot continue to operate solely based on its lowest cost model, it has yet to find a new niche. The retailer is focusing on improving existing store sales through remodeling but cannot rely on opening new stores at lighting fast speeds anymore. Shoppers want “quality, style, service, store aesthetics,” not just low-prices. Throughout the retail industry, consumers are expecting more.

Despite its huge impact on the retail industry, which forced virtually all retailing sectors to become more cost efficient and increase product cycles, Wal-Mart has not kept up with competitors that combine its model of improved logistics with their existing business approach. Wal-Mart continues to rely on low prices as its sole strategy, but consumers want to see something more. They know they can get low-priced products, but what has Wal-Mart done for them lately?

Discussion Questions:

1. Is Wal-Mart’s competitive advantage sustainable?

Anthony Bianco, “Wal-Mart’s Midlife Crisis,” BusinessWeek, April 30, 2007.