Wal-Mart Stores is likely to expand its small format in the U.S. and experience more growth overseas than domestically over the next 10 years, industry observers told SN.
“How Wal-Mart deals with some of the challenges it faces today will determine how it grows over the next decade,” Jim Hertel, managing partner at Willard Bishop, Barrington, Ill., told SN.
“The basic challenge is, how does Wal-Mart establish itself as the low-price leader again and continue to grow?”
The company is still trying to recover from some mistakes of the last four or five years, he noted, “such as when it moved off message with Great Value, which was a mistake because Wal-Mart was founded on the principle of selling national brands, which gave shoppers a reference point on price. But when it went deep into private label, it undercut that historical basis for comparison.
“I’m not sure the company has recovered from that, though it seems to be going back to the early days of Sam Walton and expanding national-brand selection again and returning to the formula that worked for such a long time.”
Looking ahead, he said Wal-Mart is likely to grow the Express format across the U.S. Beyond that, it has to figure out what other formats might be ripe for expansion, Hertel said.
“Finding a compelling new growth model or format it can pursue for the next few decades is probably the biggest internal challenge,” he said. “And with more than 50% market shares in many areas, it will probably look outside the U.S. for sales growth.”
Discount Stores May Disappear
According to John Rand, director of retail insights for Kantar Research, Cambridge, Mass., “I believe in our lifetime we will see the last Wal-Mart discount store disappear, and we’ll see more variable-sized Wal-Marts. And I wouldn’t be surprised if it got into some non-retail businesses.
“What’s clear is, there will be more Wal-Marts in smaller formats and its stores will be more targeted to local needs rather than being standardized.
“There will also be new banners in other countries, which is where the biggest part of its growth is likely to come.”
Chuck Cerankosky, an analyst with Northcoast Research, Cleveland, also said he expects more international growth for Wal-Mart, particularly in countries whose economies are growing.
“Wal-Mart could make acquisitions and expand organically in some of those places and actually grow faster than it will in the U.S.,” he said.
“But it will continue to grow in the U.S., particularly with more tests of smaller formats. It’s learned a lot about food retailing in the last three or four years because of the economy — to address price-sensitive customers more than ever before — and it’s seen the percentage of sales in supercenters skew more toward food during the recession, so it’s probably thinking more about private label, perishables, assortments and brands along with smaller formats.”
Cerankosky said he doubts Wal-Mart will change its approach to perishables merchandising. “There are so many quality issues, and if you’re in the retail food business, you have to be in the fresh business. I expect Wal-Mart will continue testing different grades of beef and different perishables presentations. But its merchandising strategy will always be based on low price points in terms of quality and presentation.”
For industry analyst Gary Giblen, “There’s a possibility Wal-Mart could lose some of its luster over the next few years,” he told SN. “Its sheer size may make it harder to execute well.
“It’s already become less sharp in its execution, and it’s inevitable for an organization to get complacent after so many years of such explosive growth.”