After Sam: Did Wal-Mart Lose Its Way After Walton Died?

by Mark Friedman  on Monday, Jul. 2, 2012 12:00 am  

Time Magazine featured a posthumous tribute to Sam Walton, calling the Wal-Mart founder "America's favorite shopkeeper".

It launched a basic website in 1996, but early Internet surfers largely ignored it. The company renovated the site in the fall of 1999 but then had trouble getting merchandise in the hands of customers by Christmas. Wal-Mart again tried a major overhaul of its website in 2000, but it too failed to gain sales momentum.

In the meantime, Amazon.com Inc.’s sales took off, soaring from $3.9 billion in 2002 to $19.2 billion in 2008. Amazon’s revenue stood at $48.1 billion with a profit of $10.8 billion in 2011, making it the largest online retailer. Amazon’s profit margin was an astounding 22.5 percent, compared with 3.5 percent for Wal-Mart. Wal-Mart doesn’t break out its online sales in its financial reports, but sales from Walmart.com were estimated at $4.9 billion in 2011, which was up nearly 20 percent from a year earlier, according to Internet Retailer, an online retail industry website.

Another eye-opening development came as a result of Wal-Mart putting its online attention on the back burner. In 2008, Apple’s online iTunes Store passed Wal-Mart to become the No. 1 music retailer in the United States, apparently the first time Wal-Mart led a category in sales and then lost it to another retailer.

More Blunders

One of the biggest miscalculations Wal-Mart’s management made occurred in 2007 when it scrapped its “Always Low Prices” slogan after more than 20 years and replaced it with “Save Money. Live Better.”

In 2008, Wal-Mart announced that customers would see fashionable clothes on the racks. But Wal-Mart has never been the store of choice for fashion trendsetters, and changing the merchandise mix doesn’t change that fact. For the fiscal year that ended Jan. 31, 2009, apparel accounted for 11 percent of U.S. store sales; a year later, it was down to 10 percent.

And in 2009, with the U.S. suffering through the worst economic recession in decades, Wal-Mart launched a project to renovate most of its U.S. stores. It planned to streamline its inventory to make the stores easier to shop, even going as far as removing “Action Alley,” where special promotions are placed on a wooden pallet in the middle of an aisle.

During other recessions, Wal-Mart’s revenue climbed because it was considered to be a low-price leader, said Britt Beemer, chairman of America’s Research Group of Summerville, S.C.

But during the Great Recession, the dollar stores — which are typically smaller and carry only a handful of items priced higher than $10 — experienced a surge in revenue. “There’s now a lower-price alternative out there called the dollar stores,” Beemer said.

Other analysts took notice that Wal-Mart was losing its customers.

J.P. Morgan analyst Charles Grom said in a February 2011 research report that Wal-Mart confused its core shoppers by shifting from one strategy to another.

“Over the past few years the company has shifted strategies from an upper-income focus to deep discounting and then back to” one focused on low prices, Grom said in his report.

 

 

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