business news in context, analysis with attitude

Separate Moves In Video, Clothing Show Company's Flexibility
Wal-Mart Stores Inc. yesterday made two announcements that signaled the company's ability to think beyond its traditional formats, creating new businesses where it sees opportunity.

  • Here in the US, Wal-Mart announced that it will expand the DVD rental service that it began testing seven months ago as a direct challenge to Netflix, which until then had the market all to itself. The business model is fairly simple: customers pay a monthly subscription fee, rent the DVDs online, and the company sends them from six distribution centers, reaching 90 percent of the country within two days. There are no late fees, and customers simply return the DVDs when they are done.

    Blockbuster also started up a similar business at around the same time Wal-Mart did.

    Netflix spokeswoman Lynn Brinton told The Associated Press that Wal-Mart and Blockbuster will end up in a battle for the No. 2 spot. Netflix, based in Los Gatos, Calif., has 1 million members.

    "We're not sure what Wal-Mart has, but we're sure it's a fraction of that. Until Wal-Mart hits 100,000 they won't be a threat," Brinton said.

    Wal-Mart won’t reveal its rental numbers.

    During the test, Wal-Mart's service cost $18.86 per month; with the current expansion, Wal-Mart will charge $15.54 for unlimited monthly rentals with a maximum of two out at a time; three movies at a time will cost $18.76, and four movies will cost $21.94.

    By way of comparison, Netflix charges $39.95 a month for up to eight movies out at a time, $29.95 for up to 5 movies out at a time, $19.95 for three movies at a time, and $13.95 for two movies at a time (with a limit of four movies a month).

  • In the UK, Wal-Mart's Asda Group announced that it will open two stand-alone George clothing stores this fall, a major shift in strategy for the company, which traditionally has only sold the highly successful George line from its traditional superstores.'

    According to analysts, the move reflects Asda's desire to expand its share of the UK clothing market beyond its current 2.5 percent.

    Dow Jones reports that t he two stores will be branded 'George' and will open in Croydon, south of London, and Leeds, in Yorkshire. The clothing sold in the two units will be priced the same as in Asda stores.

    Asda says that it will take about a year of testing before it decides whether or not to roll the concept out further.

    According to a statement from the company, the stand-alone fashion stores reflect the "latest example of Asda's commitment to develop flexible formats that offer the right ranges at the right prices."
  • KC's View:
    The key word there is "flexible."

    We don’t think it is a coincidence that these two announcements were made on the same day. As we wrote yesterday on MNB, Wal-Mart faces some considerable challenges as it tries to maintain its recent rate of growth, just in terms of its own size and the tendency of anything so large to become inflexible, monolithic, and intractable.

    The DVD and clothing store announcements suggest that the company is willing to do whatever it takes not just to make sure its image is of being a "quick on its feet" company, but that the reality is connected to that image.