For the last decade, Wal-Mart has been "dead money" in investor parlance. After a big jump between 1995 and 2000, the stock today is still worth less than it was in 2000. There has been volatility, which might have benefited some traders. But for most of the decade Wal-Mart's price has been lower. There has been excitement because recently the price has been catching up with where it was in 2002, even though there have been no real gains for long term investors.
What happened to Wal-Mart was the market shifted. For many years being the market leader with every day low pricing was a winning strategy. Wal-Mart was able to expand from town to town opening new stores, all pretty much alike, doing the same thing and making really good money.
Then competitors took aim at Wal-Mart, and found out they could beat the giant.
Eventually the number of towns that both needed, and justified, a new Wal-Mart (or Sam's Club) dried up. Wal-Mart reacted by expanding many stores, making them "bigger and better," even adding groceries to some. But that added only marginally to revenue, and even less marginally to profits.
And Wal-Mart tried exporting its stores internationally, but that flopped as local market competitors found ways to better attract local customers than Wal-Mart's success formula offered.
Other U.S. discounters, like Target and Kohl's, offered nicer stores with more varieties or classier merchandise – and often their pricing was not much higher, or even the same. And a new category of retailer, called "dollar stores" emerged that beat Wal-Mart's price on almost everything for the true price shopper. These 99 cent stores became really popular, and the fastest growing traditional retail concept in America. Simultaneously, big box retailers like Best Buy expanded their merchandise and footprint into more locations, dramatically increasing the competition against local Wal-Mart's stores.
But, even more dramatically, the whole retail market began shifting on-line.
Amazon, and its brethren, kept selling more and more products. And at prices even lower than Wal-Mart. And again, for price shoppers, the growth of eBay, Craigslist and vertical market sites made it possible for shoppers to find slightly used, or even new, products at prices lower than Wal-Mart, and shipped right into the customer's home. With each year, people found less need to buy at Wal-Mart as the on-line options exploded.
More recently, traditional price-focused retailers have been attacked by mobile devices. Firstly, there's the new Kindle Fire. In just one quarter it has gone from nowhere to tied as the #1 Android tablet
Source: BusinessInsider.com
The Kindle Fire is squarely targeted at growing retail sales for Amazon, making it easier than ever for customers to ignore the brick-and-mortar store in favor of on-line retailers.
On top of this, according to Pew Research 52% of in-store shoppers now use a mobile device to check price and availability on-line of products as they look in the store. Thus a customer can look at products in Wal-Mart, and while standing in the aisle look for that same product, or comparable, in another store on-line. They can decide they like the work boots at Wal-Mart, and even try them on for size. Then they can order from Zappos or another on-line retailer to have those boots shipped to their home at an even lower price, or better warranty, even before leaving the Wal-Mart store.
It's no wonder then that Wal-Mart has struggled to grow its revenues. Wal-Mart has been a victim of intense competition that found ways to attack its success formula effectively.
Then Wal-Mart implemented its "Shoot Yourself in the Head" strategy
What did Wal-Mart recently do? According to Reuters Wal-Mart decided to transfer its entire marketing department to work for merchandising. Marketing was moved from reporting to the CEO, to reporting into Sales. The objective was to put all the energy of marketing into trying to further defend the Wal-Mart business, and drive up same-store sales. In other words, to make sure marketing was fully focused on better executing the old, struggling success formula.
The marketing department at Wal-Mart does all the market research on customers, trends and advertising – traditional and on-line. Marketing is the organization charged with looking outside, learning and adapting the organization to any market shifts. In this role marketing is expected to identify new competitors, new market solutions that are working better, and adapt the organization to shifting market needs. It is responsible to be the eyes and ears of the organization, and then think up new solutions addressing these external inputs. That's why it needs to report to the CEO, so it can drive toward new solutions that can revitalize the organization and keep it growing with new market trends.
But now, it's been shot. Reporting to sales, marketing's role directed at driving same store sales is purely limiting the function to defending and extending the success formula that has produced lackluster results for 12 years. Marketing is no longer in a position to adapt Wal-Mart. Instead, it is tasked to find ways to do more, better, faster, cheaper under the leadership of the sales organization.
When faced with market shifts, winning companies adapt. Look at how skillfully Amazon has moved from book seller to general merchandise seller to offering a consumer electronic device.
Unfortunately, too many businesses react to market shifts like Wal-Mart. They hunker down, do more of the same and re-organize to "increase focus" on the traditional business as results suffer. Instead of adapting the company hopes more focus on execution will somehow improve results.
Not likely. Expect results to go the other direction. There might be a short-term improvement from the massive influx of resource, but long term the trends are taking customers to new solutions. Regardless of the industry leader's size. Don't expect Wal-Mart to be a long-term winner. Better to invest in competitors taking advantage of trends.
Adam, in years past WalMart forced their suppliers to reduce costs on a yearly basis. Over the years, most of their suppliers came to the realization that this was a no win situation and simply said “No.” And in turn, started to raise their prices. I believe what is going on now at WalMart is quite simple. If they can no longer force their suppliers to reduce their prices, then they have to cut their costs. The most visible cost cut is a diminished role of greeters as they come in the door. However, its cutting departments, cutting routine maintenance, etc. At this moment, WalMart is simply tactical (responding to the marketplace alone), and most of their strategic foresight is simply eliminated so they can reduce costs.
WalMart is a BIG Ship that is quickly becoming a dinasaur in my opinion.
I have noticed how many stores have reacted. Walmart has the most expensivemprices in fruit, vegetables, and some perishables, one can compare with Food-4-less, Lucky, etc., and Wal-Mart is nailing the consumers. So shoppers need to be more conscious, that the Walmart happy face logo has a double meaning – one of them is smiling at your patronage for their juicy profits.
In fact, Wal-Mart has other problems, in part due to their extremely centralized management culture.
They began building stores in Brazil thinking that Brazil is like the Sunbelt of the United States. They would build stores next to highways, in places that people could only go by car. Most poor people in Brazil do not have cars(!).
At a time when senior leaders at global companies are dealing with an almost unprecedented level of sophistication and innovation from competitors and value chain neighbors (soon-to-be-competitors), the leaders at Walmart have repeated the traditional mistake of misunderstanding the strategic role of marketing for business competitiveness.
I think you hit the nail right on the head by pointing out just how dangerous a competitor (or competitor-facilitating) platform Amazon is shaping up to be for Walmart.
The more interesting thought experiment is:
“What strategic options does a behemoth like Walmart have at this point?”
Walmart’s biggest strategic mistake probably happened way back in 1994 when they DIDN’T create Amazon.com, or in the early years when they didn’t commit and become a major competitor in online marketplaces until online was already out of their reach.
Thanks for the article
All must be missing the fact that the reason that Amazon is the low cost leader online, is they pay NO sales taxes. If they were to pay like most online retailers, then they would most likely be right on par with walmart in prices. When you can undercut based on the fact you pay nothing in sales taxes to the state you are selling in, yet other retailers do, then you are not a low price leader, just a company that touts your low prices and doesn’t say why they are lower. Sales taxes are one of, if not the largest of revenue producers for state and local governments. When a retailer as large as Amazon collects no taxes on the sales, then we ALL pay for those low prices in higher sales tax rates. Do the math. Does it really makes sense to shop somewhere that ensures you are paying for their profits TWICE? First thru the sale it’s self, and then thru the higher tax rate due to their not having to collect on those sales….
Speaking from a consumer’s point of view, Walmart is a disappointment. I try to avoid it. Yes, they have everything you need in one store from produce to car parts. However, none of it is any good. The produce is terrible quality, the stores dirty, the merchandise is picked over and broken and they have 20 cash registers but only use 2 or 3 at any given time causing huge line ups on a Wednesday morning when there should be none.
Amazon, on the other hand, couldn’t make shopping easier. They keep track of what my purchase history is and send me e-mails with suggestions of what might like. Then they offer one touch purchase. They have my credit card number and my shipping address. I have honestly made purchase while sick in bed. All because Amazon sent me an e-mail of what they thought I might like, and they were right. Then they made it as easy as possible for me to purchase it. If Amazon sold produce Walmart would be finished.
“Unfortunately, too many businesses react to market shifts like Wal-Mart. They hunker down, do more of the same and re-organize to “increase focus” on the traditional business as results suffer.”….a definition of insanity is: doing the same thing over and over and expecting different results….my 2 cents.
Well put Bugged out – Well put!
Out of stock situations at the local Walmarts will ultimately destroy their grocery departments, along with sub standard produce and red meat products.
Wow, you sure hit that nail right on the head! Their stock price went from $60 per share when you wrote this to $75 per share now.
Good call.