Wal-Mart Continues to Roll

Giant Retailer Determined to Prove its Critics Wrong

Brent Felgner, May 30, 2005

New York — Even as Lee Scott works to bring the smiley faces back to investors wondering about Wal-Mart’s missteps of late, and while the company struggles with a mountain of issues that has given it a black eye, the world’s largest steamroller just seems to continue flattening the road ahead.

"A lot of you thought, or maybe even hoped, that Wal-Mart would have fallen under its own weight by now … but in fact, we think it’s stronger and better poised than ever to capture additional share going out to 2010," offered Al Meyers, vice president of business development for the consultancy Retail Forward. "Why? Primarily because it’s a hunting organization.

"We’ve never seen an organization be so paranoid about competition, take so many risks and learn from themselves and others as Wal-Mart has, and become as much as an innovator," he said.

But that very innovation will continue to disrupt and destroy traditional businesses, Meyers told an audience of retailers and suppliers during Retail Forward’s Strategic Outlook Conference: "Retailing 2010: Five Years Survived, Five Left to Thrive."

But thriving won’t be easy for retailers in a Wal-Mart world.

"It took them 42 years to get where they are today — about a quarter trillion dollars. The next five they will double that to a full one-half trillion dollars," Meyers reported.

Of all the growth in retail sales over the next five years, Wal-Mart will account for 20 percent, Retail Forward forecasts.

"They’ve spelled out their strategic plan, and we’ve got their CEO summing it up in one sentence: ‘We will be where we are not.’" Meyers told the audience of about 500 mid- and senior-level executives.

"Over the next five years, we will see them move into all sorts of places, leaving massive paths of destruction in their wake," he added.

Wal-Mart does what it does, simply better, for the most part, he explained, with dogged attention to customer value, supply chain management, information technology and information sharing, an intense corporate culture and constant re-engineering of its methods.

The numbers are daunting. Over the next five years, Wal-Mart will explode its SuperCenter format from about 1,700 stores last year to more than 3,100 stores.

At the same time, its traditional discount store base will continue to shrink, perhaps headed the same way as variety stores when they were obsolesced.

Its share of the total retail market, excluding auto and gasoline, will climb from about 8 percent last year to 12 percent by 2010. And by that same year, the typical consumer products manufacturer might find as much as 40 percent of its sales funneled through Wal-Mart — indeed, there’s some suggestion it’s already well above that for a few suppliers.

"That’s important because as more and more vendors become dependent on Wal-Mart, they are also at risk of what Wal-Mart can do to them," Meyers said.

The giant retailer’s growth will come from four principal areas. They are:

• An increase in square footage at an 8 percent average annual compound growth rate, Meyers reported, largely fueled by supercenter growth, which will account for 60 percent of Wal-Mart’s total business in 2010.

• Experimentation with multiple new formats, none of which will impact the top line but will, instead, position the company for growth in the next decade.

• Overseas retailing. "Today 20 percent of their business is international," Meyers said. "By 2010, it will be a quarter of their business and into the next decade fully a third of their sales will come from overseas."

• Moves into non-retail businesses, including financial services, telecommunications, publishing and travel. Last year, Wal-Mart’s money transfer service moved more cash into Mexico than the Federal Reserve, Meyers reported.

Wal-Mart’s retail experiments might very well include convenience stores, freestanding drug stores (it’s already the fourth largest pharmacy in the country), healthcare superstores, freestanding apparel units and small footprint general merchandise stores.

It’s already testing the last two in Europe, Meyers said.

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