Tuesday, November 30, 2004

Mallrats and Walmartians

Various concerns are expressed on the reasons Wal-mart had lower sales than other retailers this Thanksgiving, from product mix to the cleanliness of the stores - online shopping is also factored into the equation as being a determinant of the retail sales equation.

What cannot be disputed, however, is that Wal-mart is the 261-billion-dollar gorilla in the marketplace. The distaste of cultural elitists aside, they provide a wide variety of products from every major manufacturer at a low margin. Being in the CRM space myself, I attribute a large percentage of their success to the supply chain efficiencies inherent in their model. By having the vendors come to them rather than the other way around, and dictating low costs through providing large orders to their suppliers they both drive their own costs down and keep the supply chain filled. It would be difficult for any other single retailer to replicate this phenomenon.

At the same time, Customer Relationship Management requires paying attention to customer needs and maintaining a level of service that ensures repeat business. Wal-mart is severely lacking in this area, taking the approach of 'build it, stock it, price it low, and they will come'. Compare this to the glitzy mall stores, say, in the Mall of America, where I visited this weekend. The stores look good, are well-staffed, over-priced, have more mall-walkers than shoppers and for the most part, do not make a profit. I also visited the Ikea store. This was a phenomenal experience - cost, quality, cleanliness and product mix all put together have ensured faithful customers and consistent repeat business in their niche of home decoration.

That being said, a niche-killer does not a retailing colossus make. There lies the problem. By focusing on excellence in a specific domain, retailers like Toys R Us and Best Buy set themselves up for being undercut in price and volume by Wal-mart consistently and repeatedly. The typical shopper is a selfish creature - given no other inducement than price, she/he will choose price as a purchasing determinant.

While I am not sure if an economic profile of a typical Wal-martian exists, it would not be a stretch to postulate that this is a member of a family with low disposable income, limited need for high-end items and the desire to find everything under one roof. Cote notes,

The target customer for Wal-Mart, of course, is about 80% completely
price-centric and 20% convenience centric. That is, customers are most concerned with price, and then a little concerned with having everything available under one roof

Walmart is in fact, very very good at sensing and responding to customer demand, leading the pack in responsiveness - both in terms of price and product availability/placement. This is again, driven in no small measure by Wal-mart's powerful computing and data mining abilities on their data warehouse.

One postulates therefore, that the Wal-mart data mining engine has segregated the US consumer base into two categories and identified the motivators that influence the first - Walmartians - so as to maximize volume at the low price points of Wal-mart. The second category is defined by the mallrats who would rather shop at Target, even if the same product is at Wal-mart at a lower price. This category is tapped lightly through the Sams Club chain and minor forays into e-tailing. It has not been necessary, so far, for Wal-mart to absorb other big-box retailers, but make no mistake, that would be done with barely a breath lost. The reason Wal-mart would not do so is the same reason that Microsoft is glad to have Apple around - it's not a monopoly when there are more players in the market.

Of Note:
Fast Company's "The Wal-Mart You Don't Know" describes the supply chain process at Walmart

The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.

PBS's Frontline asks the question "Is Wal-Mart Good For America" - the entire program is available online.

I've posted some more thoughts on retailing

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