Thursday, November 30, 2006

Why Wal-mart Is Not a Retailing Bellweather

No retailer is covered more often than Wal-mart. Nor is any retailer more hated by special interest groups, or more coveted as a place to get your product on display.

Market analysts continue to look at Wal-mart as they attempt to discern the health of the economy and the direction of retail. They should begin to look elsewhere for their signs. Here's why:

1. Wal-mart's retail sales space is capped and cannot expand.

Hundreds of thousands of new products are introduced every year. It is highly unlikely that very many of these new products will make it to the retail floor at Wal-mart. For a new item to go in, something must go. There was a time when that was not true, as the stores grew in size. But now as the stores have approached 250,000 square feet, communities are pushing back.
Have a look at the following link and store foot prints:

Many communities are reducing store sizes, not increasing them. To this end, Wal-mart will be forced to carry fewer and fewer items. At the same time, more and more items are available and thus, something has to give.

Product selection is already rather limited at Wal-mart. You cannot find classical music for instance, in the CD section at the local Wal-mart. There are multitudes of other items that are sold at retail that cannot be found at Wal-mart. While consumers may on occasion substitute one brand of dvd player for another, they are not able to substitute Hank Williams for Mozart.

2. Wal-mart shoppers reflect a narrowing of choices for the US shopper.

Affluent shoppers expect a greater number of options, especially as the price point rises. So even if Wal-mart adds more high end goods to support the goal of attracting the big spender, they simply will not have the floor space to display these items. Each square foot of Wal-mart has to produce more and more revenue, and allocating shelf space for high end merchandise will not provide the type of turnover to satisfy this need. If a shopper is looking to spend $500 on a wristwatch, and there is a choice of only one or two, the shopper is likely to look elsewhere.

3. We are becoming more individualized while the stores are becoming more standardized.

If you have been to one Wal-mart, you can be fairly certain you have been to most Wal-marts. And while some stores, such as beachtown stores, have a different mix of merchandise, the stores are primarily the same. Meanwhile, the individual consumer has learned to have it their way. They want a variety of colors, sizes and option is just about every item that they choose to buy. Even if they end up buying the white Ipod as others have, they want to know that they have had a choice. They can no longer be guaranteed to get that choice inside a Wal-mart.

So unless the US consumer changes their behaviors drastically, or new product introductions suddenly drop to zero, or communities adopt a "bigger is better" retail philosophy for new retail construction, Wal-mart is at it's physical limit. That means that unless analysts begin to look at the bigger picture, they will not be able to truly understand what is going on in the retail sector.

And when you hear that same store sales at Wal-mart are flat, you will know that does not mean that retail sales are tanking. It just means that there are new opportunities opening elsewhere.



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