Imperial Distributors

Click here to register for...
Imperial's 2010 Merchandising Show!

Commentary From Our President

If Wal-Mart Weakens……
It will Be a Happy New Year for Supermarkets

By Mike Sleeper, President/CEO, Imperial Distributors, Inc.

Wal-Mart, the 6,700-store, $312 billion global chain with a recent net income of $11.23 billion, is accused of many misdeeds. They include destroying hundreds of downtowns around the country, under-paying its employees (when it's not cheating them out of overtime), being stingy on health care. Bullying suppliers, not giving a fair shake to women and African-Americans, and trading with overseas suppliers whose treatment of workers is beyond exploitative.

Indeed, anti-Wal-Mart activity has become a virtual industry. Type "wal-mart" into your Internet and see how such organizations as “Wakeup Wal-Mart and Wal-Mart Watch” rally the opposition. CNN's Frontline TV program, "Is Wal-Mart Good for America?" and a documentary film, "The High Cost of Low Prices adds fuel to the fire. It’s no wonder the mighty chain's rebuttals in “Wal-Mart Facts” are swamped.

The press is on the case. The New York Times on Nov. 30 headlined a piece "Wal-Mart Trips As It Changes a Bit Too Fast." The Wall Street Journal reported on Sept 25 that "Seeking Growth in Urban Areas, Wal-Mart Gets Cold Shoulder." Dec. 28 headlined a comprehensive article, "Wal-Mart Blames Short-Term Woes, But Some Expect Challenges to Remain." Supermarket News, in a major article extending across 10 pages in its Dec. 4 issue, reported that "Wal-Mart faces new challenges as it seeks to expand in the U.S."

We believe Wal-Mart is slipping and supermarkets will recapture market share in 2007. Our reasons are as follows:

1. Confusion over ad campaign. A new advertising agency was hired to run the half-billion-dollar ad budget. But their stuff was a little too much for Wal-Mart’s taste, so after less than a year the campaign was dropped. There was an attempt to rehire their original agency that had been dismissed more than 20 years of good work. (Their old agency said no thanks and added they don't want a half-billion ad budget if they have to work with Wal-Mart again.)

2. Stuck with upscale merchandise. Wal-Mart tried to reverse their uncool image. They decided to take on some fancy lines of apparel after testing the idea in 600 stores. Customers were shocked, and the goods didn't sell. Fur-trimmed jeans???

3. Yuletide remodeling. Wouldn't you think after opening and remodeling thousands of stores over the past 35 years, this experienced chain would know better than attempting to remodel 1,800 stores during the holiday season? They didn't - and paid the piper with reduced sales.

4. Layaway change a mini-fiasco. On Nov. 19--just in time for holiday shopping-- Wal-Mart announced that its layaway program was no longer. Who was hurt by the policy change? Middle-and lower-income people, the backbone of their business.

5. $4 prescriptions. 35 private label items was announced. Competitors matched the price and customers soon found out that these same items were as cheap to buy elsewhere.

6. Foreign investment. Wal-Mart has done well in Mexico and in South America, but gave up in Germany and South Korea (loosing billions in the process). Wal-Mart has not done well in England and Japan. Now they have plans to build thousands of stores in China and India. But the question is whether Wal-Mart can commit such financial and human resources without weakening its grip in the U.S.

7. Weak financial stats and lower stock prices. According to the Wall Street Journal, Wal-Mart's US sales for comp stores fell 0.1 % in November from a year earlier, which was the second decline in 27 years, while their same-store sales in food fell below most major grocery chains. Although December same store sales increased 1.6 %, their stock price fell to $46.18 in late December from its 52-week high of $51.75. The pressure on sales is expected to continue for the first half of 2007. Wal-Mart's earnings continue strong, but if sales don't pick up, the bottom line could be affected.

8. Eroding customer base. High-priced gasoline has affected lower-income households who are traditionally Wal-Mart's best customers. The squeeze on energy prices is hurtful and will not go away. And, Wal-Mart's expansion in metro areas, particularly in the Northeast, is being held back by a combination of expensive building sites and better-heeled customers less inclined to shop the cheapest place in town.

9. Expansion difficulties. Target stores, "the cheap-chic" retailer (as the Journal refers to it), is centering its growth in urban and suburban areas, where low-price appeal falls on less responsive ears. As for Wal-Mart, building more stores in rural markets--where it has been most successful, risks self-cannibalization.

10. More and stronger competition. Supermarkets chains and leading independents are finding the right combination of price, service, and quality with an emphasis on fresh foods to be more competitive. They are recapturing their market share at Wal-Marts expense.

Wal-Mart is still big and plenty strong. It's not afraid to throw its weight around to maintain its No. 1 position. But if Wal-Mart weakens, it will be a Happy New Year for Supermarkets.

For comments or questions, E-mail: msleeper@imperialdistributors.com

Previous Editorials