business news in context, analysis with attitude

Business Week reports on what it calls “Wal-Mart’s mid-life crisis.”


• “For nearly five decades, Wal-Mart's signature ‘everyday low prices’ and their enabler—low costs—defined not only its business model but also the distinctive personality of this proud, insular company that emerged from the Ozarks backwoods to dominate retailing. Over the past year and a half, though, Wal-Mart's growth formula has stopped working.”

• “Wal-Mart's botched entry into cheap-chic apparel is emblematic of the quandary it faces. Is its alarming loss of momentum the temporary result of disruptions caused by transitory errors… and by overdue improvements such as the store remodeling program launched last year? Or is Wal-Mart doing lasting damage to its low-budget franchise by trying to compete with much hipper, nimbler rivals for the middle-income dollar? Should the retailer redouble its efforts to out-Target Target, or would it be better off going back to basics?”

• “If Wal-Mart seems short of answers at the moment, it might well be because there aren't any good ones. Increasingly, it appears that America's largest corporation has steered itself into a slow-growth cul de sac from which there is no escape.”

• “Simple mathematics suggest that a 45-year-old company in an industry growing no faster than the economy as a whole will struggle to sustain the speedy growth rates of its youth. In Wal-Mart's case, this difficulty is exacerbated by its great size and extreme dominance of large swaths of the U.S. retail market. Wal-Mart already controls 20% of dry grocery, 29% of nonfood grocery, 30% of health and beauty aids, and 45% of general merchandise sales, according to ACNielsen. However, the expansion impulse is as deeply embedded in Wal-Mart's DNA as its allegiance to cut-rate pricing.”

• “The polite, self-deprecating (CEO Lee) Scott is no Robert L. Nardelli, whose ouster as Home Depot Inc.'s chief had as much to do with his abrasive personality as the chain's business problems. That said, Wal-Mart's stock has performed worse under Scott than Home Depot's did under Nardelli.”

• “The odds are that Scott, or his successor, will have to choose between continuing to disappoint Wall Street or milking the U.S. operation for profits better reinvested overseas. Only by hitting the business development equivalent of the lottery in countries like China, India, or Brazil can the world's largest retailer hope to restore the robust growth that once seemed like a birthright."
KC's View:
Mid-life crises aren’t fun.

That said, they can be an opportunity to change things up, to reinvigorate one’s existence.

We still think that what Wal-Mart needs to do is focus on some alternative formats that might let it grow in new ways, like its Neighborhood Market format. Or maybe it should look at the convenience store or drug store channels for other opportunities.

The ROI might not be the same, but the chance for expansive and pervasive growth might compensate for that.