How Big Is Too Big?

JON SPRINGER

IS THERE SUCH A THING as too much market saturation?

That could be the case in places like Oklahoma City, where Wal-Mart's multi-format strategy has resulted in shares exceeding 50% by many estimates. But that heavy share has come under some criticism as same-store sales slowed and stores seemingly competed with one another for business.

“Wal-Mart came in with Supercenters and Neighborhood Markets and its goal was essentially to reduce the competition to rubble,” noted David S. Rogers, president of DSR Marketing Systems, Deerfield, Ill. “But we've seen the conclusion. Wall Street got upset with Wal-Mart for cannibalizing its own stores, and that has cooled off the saturation strategy.”

Although based in neighboring Bentonville, Ark., Oklahoma in many ways has been a home state for Wal-Mart. Founder Sam Walton was born in Kingfisher, Okla., a small town outside of Oklahoma City. His portrait hangs in the state capitol with other influential Oklahomans including athlete Jim Thorpe, politician Alice Robertson and entertainer Will Rogers.

Midwest City, Okla., another Oklahoma City suburb, was the birthplace of the Sam's Club warehouse concept in 1983. And Wal-Mart chose Oklahoma City to be one of the first markets for its Neighborhood Market grocery store rollouts in the early 1990s, a key addition as it ramped up market share there and filled gaps between an already strong fleet of supercenters.

It is likely, however, that Wal-Mart's push in dense markets like Oklahoma City will be on hold for a while, sources said. Energized by the potential of new formats, Wal-Mart will concentrate most of its development muscle in places where it has yet to gain a stronghold, such as Chicago and California.

“After a certain point, Wal-Mart realized there were so many other places they could go to grow,” said Rogers.

In general, retailers with inordinate market shares tend to harm their communities over the long term, according to Burt P. Flickinger III, managing partner of Strategic Resource Group, New York.

“When the supermarket sector contracts and key companies collapse, everyone in the town, county and state are hurt because of lower sales-tax revenue, higher vacancy rates in shopping centers, and landlords make less and pay less in taxes,” he said. “Philanthropic and charitable contributions supported by local retailers go out, and the retailer and the supplier and manufacturer communities contract. So while Wal-Mart wins, it's often a loser locally.”