<h2>End of the Wal-Mart era? </h2><h4 class="deck">As the face of retail evolves, more customers think outside the big box</h4><p><table align="right" border="0" cellpadding="0" cellspacing="0" width="210"><tbody><tr><td class="storyinset" align="right">
<table border="0" cellpadding="0" cellspacing="0" width="200"><tbody><tr><td><img src="http://www.spokesmanreview.com/stories/2007/oct/7/biz4_walmart_10-07-2007_QLBN16T.jpg" border="1" width="198"><br><p class="caption">Shoppers leave the Wal-Mart store in Lebanon,
Ore.Associated Press
(Associated Press)</p></td></tr></tbody></table><br><table border="0" cellpadding="0" cellspacing="0" width="200"><tbody><tr><td style="border: 1px solid rgb(204, 204, 204); padding: 8px;"><h5 style="">Slow going </h5><p>
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Wal-Mart's shares trade about where they were at the start of the
decade, when the company produced less than half its current revenue.
Shares closed Tuesday up 40 cents at $44.87, and down 9.3 percent from
the stock's year-earlier price. Earlier this year, Wal-Mart took the
extraordinary step of ratcheting down its U.S. expansion plans because
its new stores were stealing too much revenue from existing ones. That
wasn't a concern in the 1980s and 1990s when Wal-Mart was regularly
flattening competitors.</p></td></tr></tbody></table></td></tr></tbody></table></p><p class="byline"><span class="name"><a href="http://www.spokesmanreview.com/news/bylines.asp?bylinename=Gary%20Mcwilliams">Gary Mcwilliams
</a></span><br>The Wall Street Journal<br>October 7, 2007</p>
<p>The Wal-Mart Era, the retailer's time of overwhelming business and social influence in America, is drawing to a close.</p><p>Using
a combination of low prices and relentless expansion, Wal-Mart Stores
Inc. emerged from rural Arkansas in the 1970s to reshape the world's
largest economy. Its co-founder, Sam Walton, taught Americans to demand
ever-lower prices and instructed businesses on running a lean company.
His company helped boost America's overall productivity, lowered the
inflation rate, and strengthened the buying power for millions of
people. Over time, it also accelerated the drive to manufacture
products in Asia, drove countless small shops out of business, and sped
the decline of Main Street. Those changes are permanent.</p><p>Today,
though, Wal-Mart's influence over the retail universe is slipping. In
fact, the industry's titan is scrambling to keep up with swifter rivals
that are redefining the business all around it. It can still disrupt
prices, as it did last year by cutting some generic prescriptions to
$4. </p><p>But success is no longer guaranteed.</p><p>Rival retailers
lured Americans away from Wal-Mart's low-price promise by offering
greater convenience, more selection, higher quality, or better service.
Amid the country's growing affluence, Wal-Mart has struggled to
overhaul its down-market, politically incorrect image while other
discounters pitched themselves as more upscale and more palatable
alternatives. The Internet has changed shoppers' preferences and eroded
the commanding influence Wal-Mart had over its suppliers.</p><p><table align="left"><tbody><tr><td><br></td></tr></tbody></table>As
a result, American shoppers are increasingly looking for qualities that
Wal-Mart has trouble providing. "For the first time in a long time,
quality has a chance to gain on price," says Lee Peterson, a vice
president at Dublin, Ohio-based brand consulting firm WD Partners Inc.</p><p>Now,
the big-name brands that fueled Wal-Mart's climb to the top are forging
exclusive distribution deals with other retailers, or working to reduce
their reliance on its stores. PepsiCo Inc., which favored mass-market
campaigns a decade ago, recently skipped Wal-Mart when launching a new
energy drink in favor of Whole Foods Market Inc. Consumer-products
giant Procter & Gamble Co. gets 15 percent of its revenue from
Wal-Mart, down three percentage points from 2003.</p><span class="subhead">Size matters – to a point</span><br><p>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 170 to
190 more of the 200,000-square-foot supercenters that are its hallmark
and to 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.</p><p>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.</p><p>"All retailers have a
formula. They grow as far and as fast as they can with that formula,"
says Love Goel, a former Fingerhut Cos. executive and now chairman and
CEO of Growth Ventures Group, a Minnetonka, Minn.-based private-equity
firm that invests in retail businesses. Wal-Mart has outgrown its
supercenter recipe, but efforts to win growth from more affluent
consumers have fallen flat, he says. "They have hit the wall."</p><p>Wal-Mart
declined to make an executive available for an interview and declined
to respond to written questions, citing an upcoming meeting with Wall
Street analysts.</p><p>Business history is littered with companies that
grew to enormous size and used their girth to re-arrange the world to
fit their strengths. Think International Business Machines Corp. in the
mainframe business, General Motors Corp. in autos, or Microsoft Corp.
in personal computers. For a time, their success bred an ecosystem that
sustained their status. In the 1970s, independent software companies
piggybacked on IBM's mainframes, resulting in greater demand for
mainframe computers.</p><p>Such orchestration can produce solid growth
for decades. But it can also produce corporate blinders. Over time,
IBM's grip on the corporate data center left it unable to anticipate
the decentralizing effects of personal computing. GM's knack at brand
creation and frequent model changes left it vulnerable to the
incremental quality approach of Japanese auto makers. Microsoft was so
busy cramming features into its Windows operating software that it
lagged others in the shift to the Internet. Each remains among the top
in its industry; yet each has relinquished the role of industry definer
– IBM to Intel Corp., GM to Toyota Motor Corp., Microsoft to Google Inc.</p><span class="subhead">The 'value loop' unravels</span><br><p>Wal-Mart's
great insight was perfecting the so-called "value loop" in retailing.
At its most basic, the system works like this: Lower prices generate
healthy sales gains and profits. Some of those profits went into
further price cuts, generating more sales. The lower the price, the
more consumers flocked to Wal-Mart.</p><p>But the value loop is
beginning to unravel. For 10 years through 2005, Wal-Mart's sales gains
at stores open at least a year averaged 5.2 percent. So far this year,
its comparable-store sales, a measure of market share, is up just 1.3
percent. The pricing gap between Wal-Mart and rivals has narrowed, and
more customers are now choosing convenience over wading through a
supercenter.</p><p>That compares with comparable-store gains of 4.6
percent at Target, which markets itself as a trend-setting discounter,
and 6 percent at membership-club rival Costco Wholesale Corp., which
peddles $500 Bordeaux wines and $4,000 Cartier watches. While Wal-Mart
has been portrayed as a ruthless employer, Costco has been praised for
providing some of the best employee benefits in retail.</p><p>Wal-Mart's
shares trade about where they were at the start of the decade, when the
company produced less than half its current revenue. Shares closed
Tuesday up 40 cents at $44.87, and down 9.3 percent from the stock's
year-earlier price. Earlier this year, Wal-Mart took the extraordinary
step of ratcheting down its U.S. expansion plans because its new stores
were stealing too much revenue from existing ones. That wasn't a
concern in the 1980s and '90s when Wal-Mart was regularly flattening
competitors.</p><span class="subhead">Internet reduces influence</span><br><p>But
the Internet is transforming the retail definition of scale. The
once-stunning compilation of 142,000 items found in a Wal-Mart
supercenter doesn't seem so vast alongside the millions of products
available on the Internet. At the same time, the cost of creating and
sustaining a national brand is rising because of media fragmentation.
Niche brands, created by Internet word of mouth, are winning shelf
space and sapping profits required to fund big brands' advertising.
Manufacturers such as Apple Inc. and Phillips-Van Heusen Corp., lacking
the retail distribution or presentation they crave, are opening their
own stores. One result is that retail giants hold less sway over their
customers – and over their suppliers.</p><p>And across the landscape, numerous rivals are using a form of competitive jujitsu to keep the Bentonville behemoth off balance.</p><p>Grocery-store
chains such as Kroger are resurging on sales of prepared or semicooked
meals, which people can grab on their way home. Cincinnati-based Kroger
projects sales at stores open at least a year will climb between 4
percent and 5 percent this year, on top of a 5.3 percent increase last
year.</p><p>Thomas Kim, a financial analyst for a St. Louis scrap-metal
firm, describes his family as frugal shoppers who check prices on the
Internet. But he and his wife most often shop in local retailers. "It's
the convenience factor," says Kim. His family avoids supercenters,
describing them as too large and too crowded.</p><span class="subhead">Specialization pays off</span><br><p>Melissa
Morris says Best Buy won her loyalty by gladly accepting a notebook PC
return and having trained sales clerks. "I go to a store that
specializes or has associates there that know about it," she says. The
Erie, Pa., sales executive refuses to go to Wal-Mart, citing its
crowded aisles and hurried atmosphere.</p><p>Best Buy and specialty
retailer PetSmart Inc., which touts pet grooming and kennel stays, put
hard-to-copy services at the forefront of their pitch, says Howard N.
Jackson, president of retail advisers HSA Consulting Inc., Knoxville,
Tenn. "They realize the best way to win a fight is to make sure you
don't get in one," he says.</p><p>Wal-Mart has long sold prescription
drugs, setting up its pharmacy business in 1978. But national drug
chains CVS Caremark Corp. and Walgreen Co. reacted by redefining their
role and selling basic health services, such as school physicals,
diagnostic tests, and flu treatment, alongside drugstore wares. CVS and
Walgreen each acquired in-store clinic operations, redefining the
pharmacy business as basic health-care centers.</p><br clear="all"><br>-- <br>Gray Tree Crab aka "Big Bertha"