The article I have chosen is one about Walmart and the opening of their new convenience stores around the US. I found this article quite interesting and thought it showed very much where the retail industry is heading, a more uniform retail environment, especially in a market like grocery stores. This article also gives a strong example of retail strategy and location as well as illustrating the effect these multinational retailers are having on the smaller independent retailers. To best evaluate this article we need to discuss the relevant retail marketing concepts, models and theories that are present.
Wal-Mart is the largest retailer in the world based on revenues and competes with other retailers like Costco, Target and Amazon, according to Forbes (2011). According to one analyst at Forbes, Walmart commands about 33% of the U.S. grocery market. Walmart’s venture into convenience stores or neighbourhood market’s could be seen as acquiring profit from a whole new segment of the market. We need to understand why Walmart have decided to open new convenience stores to get an idea of their retail strategy. According to The Economist 1 ‘Demographics and changes in lifestyles have played into the convenience stores hands, with young urbanities and the well off elderly often more concerned about location and speed than price.’ So as we can see these convenience stores provide something that Walmart’s superstores cannot, quick, convenient service. Mike Duke, Walmart’s chief executive, says that Walmart 2‘is seeking new avenues for growth in the United States as comparable-store sales in the company’s namesake stores have fallen for seven consecutive quarters.’ This shows that the demand for superstores is saturating, people in the US are wanting smaller stores nearby that can offer similar products on a smaller, more convenient scale. The economist says that 1‘In the US convenience stores came back with a vengeance last year, reporting a record US$337 billion in sales – a whopping 16% rise on the year before.’ So obviously there is an incentive to invest in the smaller outlets, so that they can get a hold on some of the profits made in this segment of the market. Also with Walmart’s spending power they will be able to undercut the other convenient stores in the area.
One theory as to why Walmart have extended their company into convenience stores is explained through Hollander’s (1960) ‘retail accordion theory’, which is based on McNair’s ‘wheel of retailing’ theory. McNair (1931, 1958) argues that retailers always enter a market as low price, low service and low margin operators, who gradually trade up when they mature. This makes them vulnerable to new and innovating retailers, who, in turn, go through the same pattern. Hollander (1966) extended this theory after reviewing the history of American retailing to say that the change of retailing follows a ‘general-specific-general cycle’. This explains the change in demand from large stores to small, more specific stores. Huffman and Kahn (1998) believe that this is due to too much choice, which can cause overload and confusion, causing some customers to retreat and not make a purchase at all. Going back to what Mike Duke, Walmarts chief executive, said store sales have fallen for seven consecutive quarters, whereas the sales in convenience stores in the US have gone up 16% from the previous year. This helps to justify Hollander’s theory, as the demand for the ‘general’ store reduces the demand for the ‘specific’ store increases.
The external environment surrounding this market may give us an explanation as to why Walmart are downsizing their stores. Chain stores, like The Home Depot have already cut back on store size over the years to move into non-traditional locations or reduce operating costs. 4Debra...