For years Walmart has lead the discount retail market space promising and delivering on “Every Day Low Prices”. But, despite their success and ability to operate on razor-thin margins, Walmart is not doing as well as they once were. But why? What has changed?
Increased Lateral Pressure
Target has always been a tough competitor for Walmart, although the two have slightly different consumers. Walmart focuses on offering the lowest prices to provide goods to lower/middle class consumers. Target on the other hand, provides slightly more expensive, yet still affordable products to middle class/lower-upper class customers. Although the two companies have different business goals and customers, they are still competitors and are constantly looking for ways in which to beat each other in the large superstore market.
At the beginning of the year, Kantar Retail conducted a study that compared prices between Walmart and Target. In the study, a basket full of the same products were gathered and prices were totaled:
The results showed that Target was a bit more expensive (3.8%), but not when the items were bought with Target’s REDcard. After applying REDcard discounts, Target was actually 1.4% cheaper than Walmart. This came as a huge shock, considering Walmart has always based their business on providing the lowest prices.
Granted, not all Target customers have a Target REDcard. But if the company can effectively market and grow REDcard usage, it could seriously cut into Walmart’s business.
Rise of Mid-Sized Stores
In addition to the retail threats from Target, Walmart is also feeling some hurt from smaller stores such as Walgreens and CVS. In the past, these stores were thought of as a convenience stores with a pharmacy. They had basic products for consumers to peruse while their prescriptions were being filled. But, that is not quite the case anymore.
Retail trends show that stores that focus on convenience are thriving as it is becoming a bigger and bigger factor for consumers. Shoppers are willing to sacrifice a bit on price, if they can get gas, groceries and prescription items all in one stop. As a result, these mid-sized stores are beefing up their products, making their stores more robust, and thus becoming a one-stop shop.
Walmart’s New Direction
Feeling the pressure in every direction, and following the growing trend of consumer convenience, Walmart is shrinking their stores in hopes of sizable gains. Currently Walmart is trying out three different types of smaller stores:
Currently 390 stores
Competitors: Safeway, Albertsons
Just the basics (some with pharmacies)
Currently 21 stores
Competitors: Walgreens, CVS
Walmart To Go
Convenience store with 6 gas pumps
Currently 1 store
Competitors: Wawa, Mapco, and many other c-store chains
Will it work?
Walmart’s hail-mary approach to retail will not work. The behemoth has the capital to get their feet wet, but lacks experience and small-store know-how. We saw this same desperation in the past when Walmart tried to capture additional revenue by changing their business model completely.
At the beginning of the recession, Walmart tried to gain middle-class consumers that were trying to save an extra buck. They tried classing up their stores with fashionable clothing and eye-grabbing products. This put Walmart in the ring with Target, the affordable-chic retailer, and it didn’t go so well. Instead of focusing on what had made them so successful, “everyday low prices,” Walmart turned their back to the blue-collar customers that made the company what it was.
Their most recent attempt to make a few extra dollars is no different. Convenience, like affordable-chic for Target, is more than just a trend. For long-time small store/c-store brands, convenience is their life and business model. Small stores know their mobile and on-the-go customers. They know what products work well in smaller stores. And, they have a leg up with thousands of stores and years of experience. Walmart can try and play in this arena for a while, but it’s not what they do best. It’s our belief that over time the retail giant will get squeezed out of the small store game, leaving convenience to the professionals.
Image Credit: Hilbers Incoporated