marketing, business, strategy, retail
SOURCE: CNBC
With low prices, Wal-Mart overwhelms competitors
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But some retailers survive by specializing. The best examples are Target and Whole Foods.
By Mary Thompson
8:26 AM EST August 27, 2004
For the last few years, practically every time a retailer went out of business, Wal-Mart Stores (WMT, news, msgs) got the blame. So when Toys R Us (TOY, news, msgs) recently said it was considering selling its toy business, some retail experts pointed the finger at the world's largest retailer.
So can any company compete with Wal-Mart and survive?
Since 1962, Wal-Mart has built its business on one simple principle.
"They have had a model since their inception of really delivering low prices by concentrating on lowering their operating costs," says Dan Stanek of consulting firm Retail Forward.
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This strategy has delivered big results for Wal-Mart. It generates 10% of all retail sales in the United States by luring 30% of the population to its 3,000 U.S. stores. More are on the way. It has reshaped the discount retailing arena.
Long gone
"There used to be things called Jamesway, Caldor, Stuarts," says Richard Hastings of Bernard Sands, a retail credit ratings firm. "There were really dozens of discount department stores in the United States. They're all gone."
Wal-Mart also has become dominant in other areas of retail. For example, it sells a quarter of all the toys in the United States and 20% of all apparel.
It started selling groceries 10 years ago. By offering goods at 25% less than traditional chains, Wal-Mart spurred consolidation in the industry as supermarkets closed ranks to achieve scale and compete on price. But experts note that this strategy isn't always successful.
"It's very hard to be cost efficient if you've spent 20 years being used to not being cost efficient," says David Bell, a professor at Harvard Business School.
Target (TGT, news, msgs) is an oft-cited example of a discounter that has thrived alongside Wal-Mart by offering more stylish products at low prices. In groceries, Whole Foods (WFMI, news, msgs) is thriving by offering natural foods.
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