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
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
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.