For some, a bad dream come true
I have a recurring nightmare. In my dream, Wal-Mart decides to go into the business of writing an economics column for newspapers. In typical Wal-Mart fashion, the column is cheap, half the price that I charge. I'm left with two unappealing choices: I can cut my price to match theirs or find another way to earn a living. For me it's a bad dream. For a growing list of retailers, what I've described is real life. Always big and always formidable, Wal-Mart is becoming even bigger and more formidable. Worse for competitors, Wal-Mart keeps expanding into new fields and encroaching on turf that was once Wal-Mart free. I'd call the company the 800-pound gorilla of the American economy, but my guess is the 800-pound gorilla worries that Wal-Mart is going to come along and kick its butt one day.
The most recent rival to feel the pressure was Target. The big discounter last week reported disappointing earnings. Target's clothing sales were particularly weak. A possible culprit? Wal-Mart, which has boosted its apparel offerings, including the introduction of Levi's jeans. Earlier this month it was Costco's turn. Costco's stock fell sharply after the firm said it too would have an earnings shortfall. Costco chief executive James Sinegal said increased price competition from Sam's Club, a Wal-Mart unit, "has been a significant factor." The nation's biggest grocery chains -- Safeway, Kroger, and Albertsons -- have all acknowledged this year that Wal-Mart's push into the food business has squeezed their profit margins and depressed results.
For Wal-Mart, success begets more success. The company's low prices boost sales volume, which in turn, allows Wal-Mart to drive costs still lower. It's a virtuous cycle others can't match. "The value Wal-Mart can deliver can be extended to an almost infinite number of businesses," said Eric Almquist, a senior partner with Lippincott Mercer, a consulting firm. That is already happening in groceries. It took Wal-Mart a few years to learn the ropes, say analysts, but today it can duplicate the quality of most supermarkets while offering shoppers bigger bargains. "It is shocking to see how much they have improved," said Maureen Depp, an analyst with State Street Research.
With almost $250 billion in annual sales, Wal-Mart accounts for 6 percent of all US retail sales and 2 percent of the gross domestic product. If you want to know what's going on with the American economy, Wal-Mart is the place to look. The growing trade deficit? Wal-Mart imports $12 billion worth of goods from China, about 10 percent of the US total. Improving productivity? A team of consultants from the McKinsey Global Institute found that Wal-Mart's superior logistics and use of computer technology was a key contributor to the economy's efficiency gains in the past decade. Deflation? What do you think those smiley yellow faces on the falling prices signs are all about?
Even on social issues, Wal-Mart can be a bellwether. Shortly after the US Supreme Court made its June ruling on gay rights, Wal-Mart changed its antidiscrimination policies to include gay and lesbian employees. On the other hand, Wal-Mart is hostile to unions, pays modest wages, sucks the life out of downtown business districts and clutters the landscape with big ugly boxes. Like the country it mirrors, Wal-Mart has both attractive and unattractive qualities.
But one thing is clear: To keep growing, Wal-Mart has to conquer new worlds. If I ran a retail chain that sells shoes, clothing, sports goods, electronics, or office supplies, I would be plotting my defensive strategy right now. There are not that many products that could not comfortably be accommodated in those cavernous stores. Wal-Mart does online, too. It is already challenging Netflix with its own online DVD rental service. Naturally, Wal-Mart's prices are lower.
I just have one request of Wal-Mart. When you knock me out of business, can I have a job as a sales associate? I look particularly good in a blue vest.
Charles Stein is a Globe columnist. He can be reached at email@example.com.
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