Wal-Mart's dominance of the retail marketplace in the U.S. has been waning due to changes in the retail environment, according to the Wall Street Journal (10/3/07). Over the 10-year span from 1995 to 2005, Wal-Mart experienced sales gains averaging 5.2%, but this year, comparable-store sales are up just 1.3%. In contrast, same store sales at CVS and Walgreen are about double that of Wal-Mart this year. "Four of the top 10 consumer-product companies say they can move merchandise faster with Walgreen and CVS," according to Burt Flickinger from retail consulting firm Strategy Resource Group. (WSJ) Target has seen comparable store gains of 4.6% and Costco is at 6%. Consumers have embraced Target's positioning as a trend-setting discounter and Costco's formula of selling branded merchandise at discounted pricing.
Competitor's of Wal-Mart have "lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality or better service." (WSJ) The economies of scale that were once an advantage for Wal-Mart are now making it more difficult for Wal-Mart to adapt to changes in consumer preference, such as demanding more freshness and choice and more personalized service. "Making such changes is difficult for Wal-Mart, which ascended to the top of retailing by superior efficiency, uniformity and scale." (WSJ) The price advantage Wal-Mart enjoyed for many years has also narrowed and consumers are now choosing convenience over trying to track down low priced items in a super store. (WSJ) Consumers today are also more affluent and quality is more important than ever and Wal-Mart's attempt to attract more upscale consumers has not succeeded.
The formula that fueled Wal-Mart's growth included selling high profile national brands, the growth of mass media to promote those brands and the growth of freeways, which allowed for the development of large stores in rural areas. This enabled Wal-Mart to overpower local chain stores and local brands. But today, national brands are striking exclusive deals with other retailers, the cost of maintaining national brands has increased due to media fragmentation and the growth of the Internet provides consumers with access to millions of products available online versus the 142,000 available at Wal-Mart. (WSJ) The result of these changes is that Wal-Mart has lost some of their influence over consumers and suppliers.
Although Wal-Mart's influence is declining, it's important to keep in mind that they are still a huge force in retailing. The WSJ article points out that there are other companies like Wal-Mart that remain dominant players in their industry, but are no longer defining their industry. For example, the role of definer has shifted from IBM to Intel, from GM to Toyota and from Microsoft to Google. Despite Wal-Mart's decline, they will remain an important component of the retail mix for direct marketers. However, savvy direct marketers may now need to reassess where Wal-Mart fits into their retail plans, based on recent changes in their positioning in the retail marketplace.
Peter Koeppel is Founder and President of Koeppel Direct, a leader in DRTV - direct response television, online, print and radio media buying, marketing and campaign management. With a Wharton MBA and over 25 years of marketing and advertising experience, Peter has helped Fortune 500 companies, small businesses and entrepreneurs develop direct marketing campaigns to increase profits.
Peter started Koeppel Direct in 1995 and has built it into one of the leading infomercial direct response media buying firms in the U.S.
For more information please visit: koeppeldirect.com
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