September 07, 2006

The WalMartization of America

So with the world becoming flatter ala Magellan & Thomas Freidman, this is leading to increased competition based on easier global access. This increased competition is going to lead to narrower profit margins, which means more sales will be needed to make a profit. This road seems to lead to the inevitable WalMartization of every non-service based commodity product in the world. Am I correct?

9 comments:

Aaron said...

I agree. I think it has been happening for a while too.

Starbucks plans to add 250 MORE stores in Chicago and it's suburbs in the next 5 years. It won't be long and you'll have a Starbucks right next to every Walgreens on every corner of the globe!

Brent said...

Yes.

Jeff said...

You've forgotten that while competition in the global marketplace has created economies of scale, designed to increase the sale of items at a cheaper rate, so too has corporations' ability to find cheaper labor for manufacturing, thanks to trade agreements like NAFTA and CAFTA.

So profit margins don't necessarily go down when you're also able to make stuff for pennies on what used to cost a dollar.

But I agree with your conclusion of the Wal*Martization of the world.

What's interesting to me is that a friend of mine with an MBA is convinced that someone will swoop in on Wal*Mart's territory and somehow find a better or cheaper way of doing it (perhaps being more energy efficient, to start).

Sabai said...

Starbucks is not a Walmartization (in my definition), because it is not replacing small coffee shops with GIANT coffee shops but just replacing the logo on every coffee shop door with their own.

Jeff, does that decreasing cost of labor point that you made make it easier for prolonged competition, do you think?

Brent said...

The key word is "commodity." (Starbucks doesn't deal in commodity products, obviously)

In a free market, what could possibly keep companies which produce/manufacture/sell commodity products from merging into one company?

Aaron said...

Individually, each Starbucks is not a GIANT retail store, but collectively, they are becoming unstoppable.

Just because a person is willing to pay $5 for a coffee instead of the .50 bottemless cup at a local diner doesn't make it different.

It's just like Wal-Mart. No, they don't offer 8,000 products so you don't have to anywhere else. However, they offer 8,000 locations, so you can get the coffee you want... so you don't have to go anywhere else.

Sabai said...

Correct Brent, the WalMartization of America theory was focusing on commodities because WalMart can still lose customers to Jewel if someone wants better service, etc. But if the product itself is identical, the bigger organization will win out in the long run.

Steve said...

I think you're going to see pretty much an expansion of what you're seeing today, which isn't so much complete Wal-Martization, but rather the elimination of medium-sized stores. It's already happening, really. In pretty much every place I've ever lived you can see the same pattern. The larger (relatively) downtown stores are moving to giant buildings, usually near interstates or new giants are coming into town and the medium-sized stores are squeezed out.

So you have a great divide. You have one area of the city with the giants focused on a little bit of everything at a low cost, and then in another area of town you have the specialty shops, places focused on best serving a single niche, where someone might be willing to pay more for individual attention and a top-of-the-line product.

I just hope that there isn't a Wal-Martization as in Wal-Mart runs its larger-store competitors (The Targets and Kmarts/Sears's of the world) out of business. Part of me fears that much economic power resting with one company.

Brent said...

I just hope that there isn't a Wal-Martization as in Wal-Mart runs its larger-store competitors (The Targets and Kmarts/Sears's of the world) out of business.

Target will survive, but what reason will any retail chain not named Wal-Mart or Target have to exist in 10 years? They'll be gone.

Wal-Mart knows it's next "target" is the Target market, though. Should be interesting.