or Search by TOPIC
Search Supply Chain Videocasts
  Sign-Up Free Newsletter
News and Views

- September 23, 2005 -


“Wheel of Retailing” Continues, as Wal-Mart Starts to Move Upstream


SCDigest editorial staff

Anyone who took a college course on Retailing may be familiar with the age of old concept of the “Wheel of Retailing” – the consistent cycle of retailers gaining a foothold into a market through productivity and low prices, only over time to lose some of that edge and begin to move upstream in terms of product mix and customers, only to later face more competitive problems as the newest round of low price competitors attacks from the bottom.

For a long while it appeared Wal-Mart may be immune to that cycle, as it continued to operate mostly at the mid-market and below while growing aggressively by adding stores and expanding into grocery and other segments.

Now, amid some slowing of sales growth and pressure from Wall Street due to a slumping stock price, Wal-Mart is attempting to move upstream. How this will ultimately impact the company and the supply chains of its vendors remains to be seen.

The Bentonville giant recently ran an eight-page ad in high fashion magazine Vogue, drawing some laughs from fashion and advertising communities. It is running a video of a Wal-Mart fashion show on a large electronic billboard in Times Square. And as the Wall Street Journal is reporting, “Wal-Mart has created a store prototype with wider aisles, lower shelves and more elegant displays of pricey products. The retailer once prided itself on selling the first DVD player under $100. Now it also offers 42-inch flat-panel plasma TVs for $1,648 to $1,998.”

The move is seen in part a response to the success of the Target Stores chain, which caters to a somewhat more upscale base and which has been growing twice as fast as Wal-Mart lately, though off a much smaller base.

The Journal notes last Christmas season, Wal-Mart ran some aggressive in-store promotions focusing on very low price items for those shoppers at the lower end of the economic spectrum – tactics which did not pay off in sales. “We went the wrong direction," Wal-Mart Chief Executive Lee Scott told analysts this June, reflecting on the failure. "You can't just spend all your time chasing a customer who is going through that economic cycle."

The changes will show up in many ways: more upscale merchandise; less merchandise and less crowded racks and displays in the stores; and an attempt to offer more fashionable apparel, including new private labels, and other stylish goods.

The Journal notes the mantra in Wal-Mart use to be “stack it high and watch it fly.” Now coming are a bunch of corporate-led rules designed to give shoppers a better view of goods and create a more fashion-oriented upscale atmosphere. To make these changes without reducing SKU counts in other areas, Wal-Mart is reducing back room space, reducing receiving doors from two to one and changing store delivery schedules to adjust.

Wal-Mart says early results are very positive. One manager of a Wal-Mart with the revamped store format claims significant increases in sales of high end electronics, wine and upscale foods, for example.

With Wal-Mart’s size, of course, the new store format change will roll out gradually. Plans call for about 100 supercenters using the format to be opened this year, just 3% of the total stores. Some of the new merchandising approaches are being used in existing stores.

Meanwhile, Wal-Mart and the grocery industry are finding emerging competitors from below with a new breed of super discounters, such as the Save-a-Lot chain. Like Wal-Mart, which grew for many years by focusing on underserved rural markets, Save-a-Lot is targeting inner city areas even Wal-Mart and other chains eschew. Other hard discounters, such as Albertson’s Super Saver chain, and Dollar General Market stores featuring fresh groceries, are also emerging. Research shows these chains can offer prices at or below Wal-Mart prices.

What do you think of Wal-Mart’s strategy of going more upstream? Will the “wheel of retailing” theory take hold and show even Wal-Mart is vulnerable from below? If Wal-Mart ever loses its dominance, how will this affect the supply chain? Let us know your thoughts.
Send an Email