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Article Excerpt
The popular image is that Wal-Mart comes to town and locally-owned retailers shrivel up and die. This may happen, but it doesn't have to. Retailers who carefully analyze their own strengths and weaknesses vis a vis Wal-Mart's may survive and prosper. Retail owners should consider three strategies: a focus on low costs, a focus on differentiation, and a value orientation. Sometimes these can be mixed-and-matched among a retailer's product lines. "There's no substitute for knowing one's customers, markets, and resources as a foundation for ... a successful strategy," according to the authors.
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No class of retailer has influenced the business landscape in recent years more than the big box, and no big boxer is more prominent than Wal-Mart. Big boxers like Wal-Mart not only apply pressure to suppliers and alter the mix of shopping alternatives for consumers, but they also greatly influence the competitive behavior of traditional retailers. The academic and business press has chronicled the wide-ranging effects of the mega-retailer over the past two decades (McCune, 1994; McGee and Peterson, 2000; Stone, 1993). Although there is growing evidence that Wal-Mart's hold on retail may be slipping, it remains a competitive nightmare for many of its competitors, particularly small rivals in local markets (McWilliams, 2007a, 2007b).
A number of authors (e.g., McGee and Peterson, 2000; Edid, 2005; Spector, 2005) have suggested or inferred competitive responses for smaller retailers when a big box like Wal-Mart comes to town. This paper builds on such work by providing a more comprehensive and theory-based analysis of strategic alternatives available to retailers specifically facing a threat from Wal-Mart. Toward that end, the remainder of the paper begins with an overview of the big box phenomenon and a framework for understanding how the big box influences the strategic landscape. Three theory-based potential strategic responses are evaluated, followed by conclusions and opportunities for further research.
Wal-Mart and the Big Box Phenomenon
The emergence of big box retailers in the United States has changed the retailing landscape considerably. The term "big box" typically refers to discount retailers whose stores exceed 50,000 square feet, with many as large as 200,000 square feet. Big boxers usually implement a limited number of store designs across markets and seek profits through high volume via low markups. Their facades are standardized with large windowless single-story buildings. Ample parking is usually available, although customers may be required to walk a considerable distance to enter the store.
Store traffic patterns spell the success of big boxers, particularly in the United States. During the last 15 years, the number of consumer trips to the shopping mall has been cut in half, a trend that has not always held true for malls anchored by a big box like Wal-Mart or Target (Chittum, 2005). In addition, a growing percentage of American teenagers have access to a credit card. Teens are making more and more purchase decisions and are frequenting shopping malls less and shopping more at big boxers, entertainment-oriented retailers, and online retailers (Barta, Martin, Frye, and Woods, 1999; Etter, 2005; Raymond, 1999; Spector, 2005).
A big box store that operates primarily in a specialized market may also be referred to as a "category killer." Toys "R" Us is widely referenced as the first category killer; others in the U.S. include Best Buy, Circuit City, Lowe's, Blockbuster, and Home Depot. From a strategic perspective, general merchandise big boxers and category killers are similar in a number of ways, with the primary distinction being the breadth of the product line (Spector, 2005). Wal-Mart, for example, sells office supplies like Office Depot, electronics like Best Buy, and hardware like Home Depot, but does not offer as wide a selection as their specialized counterparts.
Wal-Mart is the perennial general merchandise big-box retailer in the United States, although rivals Costco and Target are also prominent examples. Wal-Mart boasts 23 miles of retail selling space in the U.S., where 70% of its approximately 5,500 stores are located. Annual revenues for 2004 were slightly over $288 billion (Revell, 2005), making it number one on the Fortune 500 ranking. By 2005, Wal-Mart had slipped to second place on the Fortune 500 (McGirt, 2006) with revenues of $315 billion, just behind Exxon Mobil. However, in 2006 it regained the top spot as revenues exceeded $350 billion (Useem, 2007), with its headcount nearing two million.
Because of its prominence and ability to trim costs, Wal-Mart is often the brunt of criticism from politicians, activists, union leaders, and others. Detractors, for example, contend that Wal-Mart's aggressive negotiating tactics ultimately annihilate U.S. manufacturing firms and send American jobs overseas. Some charge that the mega-retailer seeks to render obsolete small businesses in the communities in which it operates (Edid, 2005; Quinn, 2000). Others cite positive influences, however, noting such factors as job creation and the benefits of low prices (Etter, 2005; York, 2005). When Albertson's--the second largest grocer in the U.S. with 2,500 stores--searched for a buyer in 2005, it was another reminder that Wal-Mart can destroy smaller competitors and have a staggering effect on the success of large retailers as well (Berman, Adamy and Sender, 2005). Besides Albertson's, a host of formerly successful discount chain stores were bankrupt by the late 1990s, including Heck's, Arlans, Federals, Ames, E.J. Korvette, Atlantic Mills, and W.T. Grant (Camerius, 2006).
Wal-Mart critic Arindrajit Dube suggests that Wal-Mart's relatively low wages result in an annual wage loss in the retail sector of almost $5 billion. Hollywood producer Robert Greenwald even produced a movie about the giant retailer, "WAL-MART: The High Cost of Low Price," chronicling the plight of an Ohio-based hardware store when Wal-Mart moved to town (York, 2005). Indeed, the liberal segment of the U.S. has adopted Wal-Mart as its cause de jour with such a vengeance that one writer has labeled their obsession WMDS--Wal-Mart derangement syndrome (Goldberg, 2006). Senator John Kerry (D. Mass.) has been quoted as saying that Wal-Mart is "disgraceful" and a symbol of "what's wrong with America" (Will, 2006b). He is basing his remarks on Will's (2006b) claim that Wal-Mart costs about 50 retail jobs for every 100 jobs that it creates.
Critics are aghast at Wal-Mart's wages and lack of health care coverage, siding with unions in their efforts to organize Wal-Mart workers. They argue that Wal-Mart takes advantage of American blue-collar workers who, due to downsizing and outsourcing, cannot find viable employment elsewhere. They also suggest that much of the outsourcing can be blamed on Wal-Mart's coercive tactics in dealing with suppliers and costs. Through laws and ordinances, the union push has even led several states and cities to try to force Wal-Mart and other big-box retailers to spend at least 8% of its payroll on health care or pay a minimum of $13 an hour to hourly employees (Novak, 2006; Will, 2006a). When Wal-Mart announced its intention to move into inner city areas of Los Angeles, for example, voters rejected its effort (Kaplan, 2006), choosing instead to rely on small morn and pop merchants that some suggest have historically overcharged local residents who lack basic transportation.
Not all press has been negative, however. As Jason Furman of New York University notes, Wal-Mart's economic benefits cannot be ignored as the retailer saves its customers an estimated $200 billion or more on food and other items every year (Mallaby, 2005). As for health insurance, Wal-Mart offers 18 different plans to its employees, with one having monthly premiums as low as $11 (Will, 2006a). All together, over...
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