Wal-Mart’s A Series of Unfortunate Events

Five years ago, Businessweek’s cover story asked “Is Wal-Mart Too Powerful?” The answer seemed to be yes then. Now, Businessweek’s cover tells us “Wal-Mart’s Midlife Crisis”. Wal-Mart lost its winning momentum. In 2006 its U.S. division earned only a 1.9% gain in same-store sales, the worst performance ever. And there’s no sign of recovery yet for this year.

Wal-mart tried to learn from Target’s stragety and cater to the middle class shoppers. Target’s clothing department is especially successful, which gives customers brand name quality and design at relatively low prices. Wal-Mart rolled out its own design label and renovated the clothing section for better shopping experiences. However, the practice was not successful as expected. Perhaps, the change didn’t get much middle class shoppers they wanted but at the same time, lost the low income groups, who have been Wal-Mart’s major target.

Other companies are learning from Wal-Mart and differentiating from it. American major grocers, like Kroger, Safeway, Supervalu and etc were able to find the niche markets Wal-Mart couldn’t cover. Their price is still higher than Wal-Mart, but the products are fresher and more exotic. You may find walnut oil on Kroger’s shelf but not in Wal-Mart. Some shoppers tend to stock a week’s groceries in one shopping trip, while other shoppers may just walk into the store shopping for today’s dinner. Safeway added a lot more fresh but ready-to-serve products. Wal-Mart is still the indisputable champ in groceries, but it’s no longer invincible.

Meanwhile, Wal-Mart’s “everyday low prices” and the smooth logistics behind stopped working. The price differences between Wal-Mart and other retailers are shrinking. A recent survey found that Kroger’s prices were 7.5% higher on average than Wal-Mart’s, compared with 20% to 25% five years ago. Wal-Mart’s executive decision to lower its product stocking may lead shoppers find their favorites out of stock so often in Wal-Mart and switch to other stores.

Other factors make Wal-Mart situation even worse. For example, high gas price hits Wal-Mart’s loyal, low income shoppers harder than higher income dollars other stores aim for.

Still, Wal-Mart is a solid company. After five decades of fast growing, it finally slowed down, but not stopped.