Cost reduction + low prices + mainstream merchandise + small-town, cookie-cutter stores = unprecedented success
t was seemingly so simple.
More recently, an international component was added. Wal-Mart would expand to other parts of the world including Western Europe for accelerated growth, a move that would produce its next round of success.
Yet today, Wal-Mart's tried-and-true formula is being altered as never before. It includes new elements such as higher-priced, upscale merchandise. The old focus on rural locations has expanded to urban sites. Store merchandising is increasingly differentiated by local markets so that one size no longer fits all.
On the international front, Wal-Mart is abandoning much of its earlier game plan. Late last month, it announced plans to pull out of Germany (see Page 6), and in May it decided to put its South Korean stores on the block.
The big question is whether Wal-Mart can prosper with all of these new formulas and directions?
A case in point involves the push toward U.S. urban stores, the focus of this week's cover story (see Page 12).
So far, Wal-Mart has a very low share in urban markets but it hopes to grow that stake with additional units, including two new stores near New York City. The retailer also has designs on cities including Los Angeles and Chicago. For now Wal-Mart is satisfied to locate on the outskirts of metropolitan areas as it fine-tunes its urban game plan.
But the Arkansas retailer faces numerous challenges in this effort. As it embraces cities it will need to increasingly hone assortments to ethnic and other groups of shoppers. Wal-Mart will also have to overcome local attacks on its urban ambitions, such as a recent Chicago City Council vote to require big-box retailers to pay increased wages.
Analysts are generally positive about Wal-Mart's new strides, and some point out that the changes aren't as extreme or widespread as perceived. But clearly, Wal-Mart is placing some big bets and the retailer doesn't always call it right. The German case involved a big misstep regarding what kind of merchandising plays in foreign markets. The result is that it will leave that country and possibly dash hopes of a major European presence. Instead, it will direct global expansion efforts to emerging markets.
You have to give credit to Wal-Mart for experimenting. It's become good at listening and trying new things.
But the retailer finds itself in uncharted territory. It will get some of these new things right. However, at some point it will need to settle on a clearly defined, consistent formula or formulas rather than trying different approaches all over the place. Wal-Mart will also need to clarify whether it is courting a new customer, and if so, what happens to the old one.
Consumers will eventually need to understand what Wal-Mart stands for. Then they can decide for themselves if they want to be part of the new equation.