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Wal-Mart: $500 Billion by 2010

The world's largest company continues to morph and, despite its challenges, shows no signs of slowing.

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When Alfred Meyers said, “Wal-Mart is an innovator that disrupts business,” he wasn’t kidding. The vice president of business development for Retail Forward made the comment at a Strategic Outlook Conference last month called “Retailing 2010: Five Years Left, Five Left to Thrive.”

“Wal-Mart is a learning organization,” Meyers said. “They reinvent stores, they think big, they disrupt the status quo.”

Already the company has impacted the supermarket business and brought its weight to bear on the toy industry. It holds leading positions in other categories, including health and beauty care, pet food and supplies and home textiles. According to Meyers, Wal-Mart could come to dominate baby supplies and baby care, fashion apparel and consumer electronics.

Despite Wal-Mart’s public-relations and legal travails — the company has come under fire from labor groups  for its wage and benefits policies, is the target of a federal investigation involving a former executive and has been named in the biggest gender-bias class-action lawsuit ever — it just keeps going like the Energizer Bunny, perhaps a volt or two shy.

“A lot of you may have hoped that Wal-Mart would implode under its own weight,” said Meyers, who noted that instead the company has learned to be flexible, adjusting when it runs into obstacles and situations it can’t control.

According to Retail Forward, 90 percent of consumers in the U.S. visited Wal-Mart last year. The company is projected to reach $500 billion in sales in 2010, nearly double the $285 billion last year.

Meyers said Wal-Mart’s strong corporate culture, ability to stay a step ahead of the competition and willingness to invest heavily in technology will allow the company to achieve that threshold. In addition, there’s Wal-Mart’s focus on customer value and supply-chain management and its stick-to-itiveness.

“They are constantly engineering,” he said. “There’s constant improvement.”

Even though Wal-Mart has encountered resistance in some cities, Meyers said, “We’ll see them going to all sorts of places, leaving massive paths of destruction in their wake.”

The company has an 8 percent annual compound growth rate in square footage. In Dallas, where there was opposition to Wal-Mart, the company owns 25 percent of the market today.

SuperCenters are clearly the company’s growth vehicle, with 3,131 expected to be in operation in 2010. Conventional Wal-Mart stores will shrink from 1,995 to 668 units by that year. The 99,000-square-foot SuperCenter concept will continue to be rolled out, and a 45,000-square-foot neighborhood market prototype will take off after 2010, Meyers predicted.

Other formats Wal-Mart might consider expanding include convenience stores, dollar stores, drugstores, health care superstores, freestanding apparel stores and small-footprint general-merchandise stores.

Wal-Mart is testing the latter through its U.K. chain Asda, which operates Asda Living stores. Asda is also operating six freestanding George stores in the U.K., with 20 more on the way. Meyers thinks the prototype could be exported to the U.S. Wal-Mart might be trying to bring to this country other lines by George Davies, the designer of the George collection. Davis is well known in Europe, but hardly a household name in the U.S.

“All Wal-Mart does is apparel basics,” said Meyer. “Does the addition of George make a difference in the shopping experience? It’s pretty boring.

“J.C. Penney gets exclusive designers and celebrities and brands,” he added. “Wal-Mart needs to create some excitement in the stores.”

Besides store formats, Wal-Mart is constantly exploring new product categories to divide and conquer. It already offers financial services, telecommunications, travel services and gasoline at 10 to 15 cents a gallon less than conventional gas stations. There’s also real estate services, and Wal-Mart provides check-cashing, for which the company rang up $6 billion in fees last year. Wal-Mart is testing a rental car operation, and it’s been suggested that the company could get into publishing or operate a fleet of jets to fly customers across the friendly skies.

“They are getting more creative and innovative,” Meyers said.

International business is still a big opportunity, especially in Spain, Russia and France. The company is also aiming to take a bigger chunk of market share in the U.K., Canada, Mexico, China, Japan and Brazil. But it will have to be sensitive to other cultures and customs. In Mexico and Hawaii, Wal-Mart has been accused of building stores on ancient burial grounds.

Wal-Mart faces significant challenges in the years ahead. Besides its public relations and legal issues, the company faces a dearth of “big” real estate, so those smaller-format store concepts might be called into service. In urban areas, there’s the high cost of penetration. The company is looking at market saturation in several areas.

Labor will remain a sticking point, in terms of costs and finding enough workers. And Wal-Mart’s size could raise antitrust concerns within the federal government.

Despite its challenges, there’s no denying the Wal-Mart juggernaut. So how are competitors to survive? Meyers said having a distinct position is critical.

“The key is to be what Wal-Mart is not,” he said. “Invest in exclusivity, and create a shopping ‘experience.’” He also pointed out that successful chains will sell solutions, not just products, and will look for underpenetrated segments to tap.

He also had some advice for vendors. “Suppliers that organize a sizable part of their business around Wal-Mart will need to add customer value, think like a retailer, emphasize efficiency and innovate or accept pricing concessions.” Suppliers also need to prepare to grow their business without Wal-Mart, he said, adding, “Those not having a plan will fail.”

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