I am posting a good bit on Wal-Mart because they will become the left's new "whipping boy." Thought it would be interesting to follow.
Wal-Mart's Next Victims
Penelope Patsuris, FORBES
NEW YORK - When Toys "R" Us said in August that stiff competition from mass merchant Wal-Mart Stores was making it consider exiting the toy business, the news struck fear in the hearts of retailers everywhere.
After all, Toys "R" Us (nyse: TOY - news - people ) pioneered the "category killer" concept that's now employed by big box specialty stores like Best Buy (nyse: BBY - news - people ), Home Depot (nyse: HD - news - people ) and Bed, Bath & Beyond (nasdaq: BBBY - news - people ). The notion of creating giant specialty stores that cater to a particular product segment has become a staple of the U.S. economy. But Wal-Mart (nyse: WMT - news - people ), the antithesis of a category killer with aisles stocked with a vast spectrum of products, is posing a dire threat to this way of business.
Wal-Mart had sales of $259 billion for fiscal 2004, ended Jan. 31, ranking it as the world's largest retailer. That sheer size has vaulted it to the number one spot in categories as disparate as food, apparel, jewelry and home furnishings. For fiscal 2005, Wal-Mart plans to add 310 new stores and 30 new Sam's Clubs, to its stable of 3,625 locations. Oppenheimer retail analyst Bernard Sosnick expects that by 2010, Wal-Mart will have 3,000 supercenters, up from 1,600 this year, and total company sales of half a trillion dollars.
That kind of growth will make Wal-Mart number one in plenty of other product categories soon enough, and it will put an even tighter squeeze on existing players in arenas that Wal-Mart already dominates, like apparel and food. With a lion like Wal-Mart on the loose, no store is ever safe, but here we've identified five categories that that look particularly vulnerable to its looming threat.
Wal-Mart is the second-largest consumer electronics retailer in the U.S. behind Best Buy, but it won't be for long. This spring, it rolled out a private-label electronics line, ILO, which thus far includes low-priced 42 inch plasma TVs, LCD monitors and DVD recorders. That move put electronics stores large and small on notice, as has Wal-Mart's efforts to boost its brand partnerships, introducing Sony and expanding its relationships with Panasonic and RCA. Says retail analyst Howard Davidowitz, "They are going to fry Best Buy's brains out."
Wal-Mart ranks fourth in the drugstore and pharmacy business, behind giants Walgreen, CVS and Rite Aid, according to the National Association of Chain Drug Stores. But it is upgrading its profile, rolling out a handful of 24-hour pharmacies in August. Pharmacies themselves are low-margin propositions, but they act as an anchor to drive the profitable over-the-counter business. Wal-Mart can employ its strategy of squeezing supply chains to push down prices in both segments. People with health insurance who pay only co-payments may not be price-sensitive. But for the shoppers who don't have insurance, many of them Wal-Mart customers, Wal-Mart's brand of competitive pricing would be just what the doctor ordered.
Gas pumps are a huge traffic driver for Wal-Mart. There are 1,555 stations on Wal-Mart properties, 300 of which are operated directly by Wal-Mart's warehouse arm Sam's Club and the rest by third-party vendors like Murphy USA. Launched in 1996, its pumps already have a 3% share of U.S. retail gas sales--the tenth largest in the U.S. As Wal-Mart's share grows, the only question is whether Wal-Mart will oust its vendors and go it alone. Independent gas suppliers are growing as the oil giants spin off their refineries, which makes that kind of a move plausible, and the sheer number of Wal-Mart locations makes it an appealing partner. Says retail analyst Kurt Barnard, "The volume they could offer would be of enormous interest to refineries."
Wal-Mart may lead the apparel market, but it does so with the sale of mundane items like underwear, socks and sweatshirts. Analysts say that Wal-Mart is losing sales of fashion items to companies like J.C. Penney, Kohl's and Target, which has had particular success with its lines from Isaac Mizrahi and Liz Lange. Wal-Mart is now gunning for a hipper milieu with George, the number one-selling British apparel brand that Wal-Mart landed when it bought its parent, U.K. retail giant Asda, in 1999. Wal-Mart also stocks the Mary-Kate and Ashley line, licensed from the famed Olsen twins. Look for the retail giant to start sprucing up its clothing displays and marketing these brands more heavily as it reinvents its fashion sense.
forbes.com
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