Wal-Mart's Declining Influence

By Peter Koeppel

Wal-Mart's dominance of the retail marketplace in the U.S. has been waning due to changes in the retail environment, according to a recent Wall Street Journal report. Over the 10-year span from 1995 to 2005, Wal-Mart experienced sales gains averaging 5.2 percent, but this year, comparable-store sales are up just 1.3 percent. In contrast, same-store sales figures at CVS and Walgreens are about double that of Wal-Mart. "Four of the top-10 consumer-product companies say they can move merchandise faster with Walgreens and CVS," says Burt Flickinger of retail consulting firm Strategy Resource Group. Target has seen comparable store gains of 4.6 percent, while Costco is at 6 percent. Consumers have embraced both Target's positioning as a trend-setting discounter and Costco's formula of selling branded merchandise at discounted pricing.

ADVANTAGE TURNED DISADVANTAGE
The Wall Street Journal article notes that Wal-Mart's competitors have "lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality or better service." The economies of scale that were once a tremendous advantage for Wal-Mart are now making it more difficult for Wal-Mart to adapt to changes in consumer preference. "Making such changes is difficult for Wal-Mart, which ascended to the top of retailing by superior efficiency, uniformity and scale."

The price advantage Wal-Mart enjoyed for many years also has narrowed and consumers now are choosing convenience over trying to find low-priced items in a super store. Consumers today are also more affluent and quality is more important than ever; meanwhile, Wal-Mart's attempt to attract more upscale consumers has been unsuccessful.

The formula that fueled Wal-Mart's growth included selling high-profile national brands, using mass media to promote those brands and the growth of freeways, allowing the development of large stores in rural areas. This enabled Wal-Mart to overpower local chain stores. 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 Internet now provides consumers in both urban and rural areas access to millions of products. As a result, Wal-Mart has lost some of its influence over consumers and suppliers.

STILL A MAJOR PLAYER
Although Wal-Mart's influence is declining, it is still a huge force in retailing. The Wall Street Journal points to other companies that, like Wal-Mart, remain dominant players in their industry, but no longer define it. 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, it will remain an important component of the retail mix for direct marketers. However, direct marketers now may need to reassess where Wal-Mart fits into their retail plans, based on recent changes in the retail marketplace.

Peter Koeppel is president of Koeppel Direct Inc., a full-service media buying agency based in Dallas. He can be reached at (972) 732-6110, or via e-mail at pkoeppel@koeppelinc.com.