Inside This Issue - Opinion
Walmart is entering a new era
March 10th, 2014
by David Pinto, Editor
Overnight, Walmart has become the most compelling story in U.S. retailing, not, as in the past, for setting records and outmaneuvering the competition but for suddenly struggling with a format and a retailing position that have been impervious to struggle for over half a century.
In the bargain, Doug McMillon, the retailer’s new chief executive, is suddenly confronted with a series of decisions that may well determine Walmart’s place and influence in the months and years ahead.
By now all followers of retailing in America have heard that the world’s largest retailer has issued disappointing sales and earnings results for its most recent quarter. Specifically, total sales improved just 1.4% to $128.79 billion, while earnings fell 22.2% to $4.35 billion. Behind the numbers is the very real possibility that the Walmart Supercenter, the reliable engine that has driven the company’s success for over 25 years, may have become tired, neglected, over-utilized or outdated.
Even now, there is a serious proposal within the company to reduce the number of superstores planned over the next few years and instead emphasize the Walmart Express stores the retailer has been opening in the recent past. These are stores of fewer than 20,000 square feet that offer little more than the basic grocery and consumables assortment with hardly the draw or potential of the superstore format to attract customers and sales.
In the end, the decision to open smaller stores will fall, to a large degree, to McMillon. Should he sign off on the program to emphasize smaller stores at the expense of larger, he may also be signaling the end of Walmart’s dominance as a big-box retailer.
Much precedent exists for multiformat retail stores under the banner of a single retailer, as it does for a merchandising assortment that varies with the community and, of course, the store size. Indeed, seldom in the annals of retailing have more retailers, both in the United States and globally, simultaneously experimented with various formats, even when the dominant store size or format has proven its merit.
Of late, these experiments have largely come from the grocery business, where retailers are busy paring store sizes to cater to a customer who is clearly frustrated by stores in excess of 100,000 square feet.
Equally interesting, it is often the most innovative — and successful — retailers that have been in the forefront of these tests, retailers who lead or dominate a category and who, in theory, have the most to lose by tinkering with a formula consumers clearly prefer.
Which brings us back to Walmart, arguably the most powerful retailer the world has yet produced. Walmart’s success has been grounded, to this point, on one concept: one-stop shopping. By combining complete ranges of groceries and general merchandise under one roof, in emporiums that often run well over 100,000 square feet, Walmart has captured the American consumer to a degree never before approached by a mass retailer.
Of late, however, the Walmart Supercenter has, according to some observers, lost its edge. Its stores, say these people, have been allowed to age, while such basic Walmart strengths as maintenance and a strong in-stock position have been ignored. As a result of these defects, along with strengthening competition, performance has suffered — and, some say, brought about the end of the Supercenter era in America.
The question is, is a smaller-format store the answer? Or an answer? The arguments in its favor turn on the idea that smaller stores will capture the customers who no longer shop the larger stores as often as they once did or as completely.
Against the small-store approach is the fact that it would take many smaller units to equal the productivity of even one big-box store, even assuming that it would catch on with the shopping public. Perhaps, say the naysayers, it would be easier to renovate the company’s core stores while continuing to open new ones at a rapid pace — easier and, in the end, more productive.
At any rate, this much is clear: Walmart has reached the end of an era of dominance, an era that has seen the retailer reach heights never before approached by any retailer here or abroad. As such, the company is entering the second era of its existence, one that will largely determine its relationship with the American consumer — and its own place in the retail community — going forward.
Against that background, Doug McMillon’s performance in the weeks and months ahead is critically important — and his ultimate place in the Walmart firmament largely depends on what he says and does, and how he confronts a future that, just months ago, seemed largely assured.