Wal-Mart (see chart here) has not been doing badly the last couple of quarters. Of course, it hasn't done great either. And if we look back the last 8 years – well there's not been much to get excited about. Wal-Mart Locked-in on its low price Success Formula 40 years ago and hasn't swayed since. Today as incomes go down and fear is huge about jobs and investments people are looking for low prices so they are returning to Wal-Mart. But those sales aren't coming easily, because Target, Kohls and other retailers are battling to get recognized for value while simultaneously offering benefits consumers demonstrated they enjoyed before economy went kaput. It's not at all clear that the small uptick in sales at Wal-Mart is anything more than a short-term blip in a very flat environment for Wal-Mart.
It's unclear that there's much growth. This week Wal-Mart admitted it was finding fewer opportunities to open new stores as saturation of its low-price approach appears imminent in the USA (read article here). Instead of opening new stores capital expenditures are going to decline by 1/3, and dollars are being shifted to store remodeling rather than new store opening. This implies a far more defensive tactic set, reacting to inroads made by competitors, rather than an understanding of how to regain the growth Wal-Mart had in the previous decades.
So now Wal-Mart is saying it will turn investments toward emerging markets (read article here). Sure. Wal-Mart wrote off huge investments and exited failed efforts in Germany and France, It's efforts to expand in Canada and the U.K. have been marginal. In Japan it only avoided a huge write-off and failure by making an acquisition. And its China project has gone nowhere, despite much opening hoopla 5 years ago. So why should we expect them to do better with a second attack into China, possibly going into India and Mexico?
The Wal-Mart Success Formula worked in the USA and drove incredible growth, but it is unclear that shoppers in developing countries get much benefit from a strategy largely based on buying goods from low-cost underdeveloped countries and importing them to the USA for mass-market buyers in low-cost penny-pinching store environments. What's the benefit to Wal-Mart's approach in Mexico or India? In India and China customers must pay high duties on imported goods, and low-cost retail exchanges already exist across the country for domestic products. Additionally, lacking a robust infrastructure (meaning a big car and good roadway to carry home mass quantities of stuff bought in large containers) it's unclear that Wal-Mart's approach is even viable. If you have to carry goods home on a bicycle, why would you want to go to a big central store? Isn't buying regularly what you need better? Wal-Mart has made no case that it's Success Formula is at all viable outside the USA, and especially in emerging countries.
Compare the Wal-Mart approach to Google (see chart here). In the last year Google has moved beyond mere search into other high-growth businesses such as mobile telephones. And today Google announced it is going to legally offer books and other copyrighted material to customers in some ways unique – but competing with Amazon's e-book (Kindle) business (read article here). Google keeps entering new high-growth markets with new demands from new customers. And in each market Google enters with new products intended to be better than what's out there today.
Wal-Mart keeps trying to find a way to Defend & Extend its old, tired Success Formula. Wal-Mart is huge, but its growth has slowed. Competitors have entered all around it, and every year they are chipping away at Wal-Mart by offering different solutions to customers. The competitors are getting better and better at matching the old Wal-Mart advantages, while offering their own new advantages. And we can see Wal-Mart is now being defensive in its histiorical markets while naive in trying to export its old Success Formula to markets that don't show any need for it. Wal-Mart is mired in the Swamp, struggling to fight off competitors while its growth is disappearing and its returns are under attack. On the other hand, Google keeps throwing itself back into the Rapids of growth in new businesses that offer new revenues and increased profits. And it enters those markets with new solutions that have the opportunity of changing competition. Google doesn't have to have everything work right for it to find growth through its White Space projects and continue expanding its value for customers, suppliers, employees and investors.