SAYING WAL-MART IS
a big company is a vast understatement. It's a colossal company. A retail monolith. How big is
Put another way by Charles Fishman, author of "The Wal-Mart Effect," Wal-Mart is adding a company the size of Target, in sales, about every 20 months. (More on his logic later.) As Wall Street knows, when you're that big and that entrenched in the market the toughest thing is to sustain growth. And that, says Fishman, is Wal-Mart's challenge now.
How can the biggest retailer in America bring in more shoppers? Fishman says it's doing a bit of experimentation, meant in part to shake up the company's often-maligned image and boost its sagging share price (down almost 13% over the last three years). In particular, the Bentonville, Ark., company, famous for its "always low prices" is adding upscale items to its super-store repertoire in an attempt to draw a new group of shoppers those interested in more than just cheap underwear. Some newer items on the shelves: organic food, $500 bottles of wine, plasma TVs and housewares designed by wedding planner to the stars Colin Cowie.
Whether the higher-end merchandise will fly off the shelves remains to be seen. But Fishman notes that the environment is one area where Wal-Mart's indelible footprint on the U.S. economy can be an enormous boon. The retailer launched a program this year to encourage sustainability of the world's fisheries, forests and farmlands, to slash energy use and reduce waste, and to push its 60,000 suppliers to produce goods that don't harm the environment.
"Wal-Mart has such market force, that if it changes the way it buys shrimp, it can single-handedly change the shrimp industry the way no government can," Fishman says.
For a company disparaged for its cookie-cutter stores and limited health-care benefits for its workers, taking on greenhouse-gas emissions is an ambitious plan. We spoke with Fishman about the Wal-Mart phenomenon and how it's trying to broaden its customer base.
SmartMoney.com: Has Wal-Mart saturated the market? A story in The Wall Street Journal this week suggests the company has no more room to grow.
Charles Fishman: The Wall Street Journal article actually jumps off with statistics that originally appeared in the book.... Those statistics tell the story both of Wal-Mart's success and challenge. Sixty-two percent of Americans live within five miles of a Wal-Mart less than a 10-minute car ride from Wal-Mart. And the numbers at the next level are even more astounding: 94% of Americans live within 15 miles of a Wal-Mart. So virtually anyone except the residents of Manhattan who want to shop at a Wal-Mart if you build one in Times Square, 70% of Americans would be five miles from one can shop at Wal-Mart.
If you look at Wal-Mart's same-store sales in the last one to two years, stores open a year are growing at about the pace of the economy, between 3% and 4% a year. When you're the largest nonoil company in the history of the world, growing at 4% ain't bad. And that's just same-store sales. Wal-Mart is adding a company the size of Target about every 20 months. (Target's at about $55 billion in revenue in the last four quarters. Wal-Mart's at $316 billion, growing at roughly 11% a year or $32 billion a year. That means Wal-Mart is adding a company the size of Target, in sales, every 20 months.) And the first Wal-Mart store, the first Target store, the first Kmart store opened the same year: 1962. So that statistic is a measure of incredible success. Wal-Mart does not close stores because they don't do good business. They don't have trouble wooing customers. But the same-store sales numbers show a problem: How do you keep growing faster than pace of the economy if anyone who wants to shop there already can?
What you're seeing now is a kind of a set of experiments to figure out how to crack the next group of customers who aren't spending their money at Wal-Mart. Wal-Mart is about 8% of all retail spending in America. That means out of every $100 spent in America, $8 is spent at Wal-Mart. That's pretty incredible. But that also means 92% of those dollars is spent somewhere else.
SM: Wal-Mart opened a different kind of store earlier this year in Texas. Is this part of their experiment to go for higher-end shoppers?
CF: They opened this experimental store aimed at a higher demographic, with higher-end goods in Plano, Texas. They're talking a lot more about offering more organic products. It's part of a larger effort to portray themselves and live with the reality of being a more environmentally friendly and alert place to shop.
There are two interesting experiments. Can we produce a store that carries a wider range of higher-quality, higher-cost goods and thereby attract the Whole Foods shopper and Pottery Barn shopper and Target shopper? And can we change the way we do business how we get our products, how we get them made so they're much more environmentally benign or environmentally beneficial, and attract people who wouldn't normally shop at our stores?
SM: What's the motive behind the push for more environmentally sound practices?
CF: The [new] standards [for selling wild caught fish] Wal-Mart is using are identical to what Whole Foods is using. They have imposed serious standards on shrimp farms for the impact those farms have on the surrounding environment and community. They've announced that by 2015 they will double the gas mileage of their truck fleet. A typical semi gets about six miles to the gallon.... There's nothing fake about saying we're going to make it 12 miles a gallon. And we're going to share the technology with any trucking company out there. You can't say they're doing it for the publicity.
Wal-Mart has a serious image problem. People are now concerned about what shopping there does to the people who work there, and to the people who shop there and the world where the products come from. But it's not a public relations problem that can be fixed with public relations.... The only way to fix the image problem is to fix the way it does business. And you can't do that in six months. The real question on the environmental side the fish standards, the experimental environmentally friendly stores, doubling organic products the question is whether that's simply symbolism or there will really be a transformation in the way Wal-Mart does business. We won't know for a while.
Let's say Wal-Mart changed the way it does business for 50 of its products. That's good. But the typical Wal-Mart carries 120,000 products on its shelves. You don't change the course of a company like this in the blink of an eye. For the Wal-Mart critics and observers, 40 years of business practices in one direction can't be obliterated with a year-long series of announcements that we're changing.
SM: How have Wal-Mart's attempts at going more upscale offering organic food, fresh produce, high-end wines, private-label clothing line been faring? Do you think it will alienate the retailer's core customer base of "middle Americans" seeking low prices?
CF: Attracting people with upscale products, that's simple merchandising. It's easy for a company with the resources and discipline of Wal-Mart to make a successful store in Plano, Texas.... It's a different kind of store than a typical Wal-Mart store. It requires different priorities, different look and feel, mood, mix of merchandise, lighting.... It's easy to produce one experimental store that's a success and that's intriguing. It's much harder to duplicate that and roll it out the country and keep the standards where you want them. When you have 10 of them, how does the worst performer of the 10 do? Are you expending resources wisely?
SM: Why are the environmental efforts so important? In your book you talk quite a bit about the company's push to sell 100 million eco-friendly compact fluorescent lightbulbs.
CF: The Plano store that's a slightly different business.... I'm not sure that if Wal-Mart really decides to go large [with that kind of store] it will be successful. I think the environmental refurbishment just as an observer that's both a story that customers are interested in, and it's an urgent problem in the world. Wal-Mart has such market force, that if it changes the way it buys shrimp, it can single-handedly change the shrimp industry the way no government can. That might be an easier goal. That happens in headquarters. That's much easier to deliver.
Executing on those experiments is the key to Wal-Mart growing dramatically in the U.S. They understand the power of changing their business. The question is whether they can drive that mission through a company as large and diverse as they are. If you're going to change the sourcing on 120,000 products you have to start on the first 100, the first 1,000 and that's where they are right now. They've started to execute on some of these things. They doubled the number of organic products they had last year.
SM: What about international growth?
CF: Wal-Mart is also interested in growing internationally, too. In order to grow dramatically, you're going to have to grow outside the country. And they've had some great success stories outside the U.S. and some failures. They closed up shop in Germany. They've struggled mightily in Japan. They're the No. 2 retailer in Britain, and they are not gaining on No. 1. In Mexico and Canada, in the space of a decade, became No. 1 in both countries. They just bought a group of stores in Central America, and given their success in Mexico, those markets are very ripe for Wal-Mart's kind of retailing. They have 45 stores in China, and announced they'll reach 250 in the next five years. China could support almost as many stores as the U.S. does. Their international growth has been propping up the larger growth of the company.
SM: Wal-Mart recently announced plans to build stores in more urban areas like Boston, but as the Journal report said, people there are opposed to it, saying it's out of character with the city.
CF: At this point there are no secrets as to how people feel about Wal-Mart. When Wal-Mart announces plans to open a store, you have to go through the normal zoning and approval process, and people in those communities immediately tap into this wealth of information from previous zoning contests about how you might defeat Wal-Mart.... So there's much more information-sharing community to community than there used to be. It's much easier to find out, if you're a Wal-Mart opponent, what arguments are persuasive, what technical issues are important, in trying to slow down the approval of a Wal-Mart. And then Wal-Mart has become a political issue, clearly. Zoning issues are a part of local politics.
I thought what the mayor of Boston said comparing Wal-Mart and Target was odd. Does he think the products Target sells, and wages it pays, are dramatically different than Wal-Mart's? If anything, health care is better at Wal-Mart. Target has nicer ads. Target is staffed in a way to support customers better. There are many more checkout lines at Target. It's better for both customers and for cashiers. The mayor said, what we want is Target. Not we want a semiconductor plant, or another university. It was an interesting reaction. Wal-Mart announced over the summer that it's going to open in 50 stores in economically depressed urban areas throughout the country. There was a political firestorm.... Why should the lowest possible prices be limited to suburban areas? Sometimes in the blighted urban areas they pay the most. They're not getting great deals.
In some ways the resistance to Wal-Mart is the result of Wal-Mart's own business practices. Wal-Mart hasn't been that interested in negotiating with the community in traffic, how it should sit in the landscape. People resist them. People aren't skeptical of Wal-Mart, they're cynical. They don't even care what Wal-Mart has to say. Wal-Mart has become a very ionized topic. And some of that is its own doing, going back 30 years.