28 June 2005
by Steven Saus
"Not the Den Of Iniquity again!" I sigh, stressing the capitals to give a more ominous effect. My wife ignores my theatrics and parks at Wal-Mart. Struck down by a fever, my rants are unusually feeble as she rushes inside and picks up dog food, ibuprofen, and thermometer covers. Total cost: less than $30.
My wife's shopping practices at Wal-Mart are typical of more affluent shoppers. (Lavelle) Wal-Mart is worried – they appear to have nearly saturated the lower-income and middle-income market. Their growth was "only" 2.9% in the first quarter of 2005 (ibid). Due to the Wall Street expectation that "growth" is necessary for economic health, the stock price of Wal-Mart has plummeted, in contrast to rival Target, who saw an increase in share price. Target is not making more money – Wal-Mart's revenues are six times larger. The stores do not even target the same shoppers: the average Target shopper makes $15,000 more a year. (ibid) Wal-Mart's slowing growth implies that they have reached market saturation among the working class. "Wal-Mart's Most Wanted", from U.S. News & World Report's website, details Wal-Mart's solution: targeting the white-collar, or affluent market.
Wal-Mart rose to commercial success utilizing many economic principles. The most relevant here is Wal-Mart's specialization. They do not specialize in the way normally found in a textbook (e.g. assembly lines). Instead, Wal-Mart specializes in serving a market – blue-collar working-class Americans. This specialization has led to tactics utilizing principles such as the substitution effect, by offering goods similar to those previously unaffordable on a blue-collar salary – though with an added opportunity cost of quality, domestic labor, or other socio-economic goals. (Fishman)
Wal-Mart succeeded in its specialization. It is the single largest retailer in the world, with over $285 billion in annual sales and 5,350 stores. (Lavelle) Still, driven by the desire for more growth, this "behemoth" is trying to generalize and conquer more affluent markets. It is almost a textbook example: Ms. Lavelle reports inefficient utilization of resources, poor marketing, and even sloppiness as Wal-Mart adapts to a different manner of selling products, diffusing its specialized edge.
As Wal-Mart moves into this new market, it will now directly compete with other retailers already specialized for the white-collar world. Will the massive buying power and clout of the Walton's store be able to negate the specialized edge of retailers already fitted for the upscale market? Or will Wal-Mart's days of being the alpha predator finally be over?
Lavelle, Marianne. U.S. News & World Report. 22 June 2005. "Wal-Mart's Most Wanted: Attention, affluent shoppers. The retail giant is bent on capturing your dollars." 27 June 2005. <http://www.usnews.com/usnews/biztech/articles/050627/27walmart.htm>.
Fishman, Charles. FastCompany. 28 June 2005. "The Wal-Mart You Don't Know." 1 December 2003. <http://www.fastcompany.com/magazine/77/walmart.html>.
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