Wal-Mart Changes Logo

As the Wall Street Journal noted, Wal-Mart is about to change its logo. "The new logo has white letters on an orange background followed by a white starburst, and the store's name will appear as one word: Walmart. "

Have you thought about what it will cost the company? New bags, new broadcast and print ads, new collateral, web site changes - literally, any and every thing that had the logo on will have to be changed. At least none of us who write about business will have to remember the old spelling. We'll just have to learn and remember the new one. It'll be worse than remembering to change the year on checks after January 1.

Wal-Mart Thinks Small?

Yesterday the Financial Times had a story on how Wal-Mart is considering lessening its reliance on its Supercenters for future growth:

The world’s largest retailer, whose US stores had sales of more than $64bn last year, is seeking an executive to assess the “strategic implications of any possible M&A on our overall portfolio”, according to a Wal-Mart job posting.

I found it interesting, given my rant yesterday about the company's gas price commercial. It seemed like a contradiction - blaming "disappointing" results (though I am skeptical on how disappointing what you do can be when you're on the top of your particular hill) on high gas prices while essentially acknowledging that the biggest box store strategy might be a dead end, but on reflection it isn't.

If the story is right (and I suspect it is), Wal-Mart is looking at acquisitions, and sees this as an gengine of growth, not of continuance. So it's an addition - and that still leaves room to blame others. I think there's still a problem: economics, mathematics, and common sense suggest that there is only so much market share you can have. Eventually you run out of people who want to do business with you for whatever reason.

So, to get someplace new, give them a new reason to buy. The online music move is interesting - and even faster than Amazon.com. Maybe what Wal-Mart needs is a real challenge. Instead of acquiring some chain and then rebranding the name to some variation of its own, creating the inevitable emotional associations, Wal-Mart might think of doing heavy research, finding some concept that really is missing, and then investing and building its own chain with a different brand, from scratch.

That flies in the face of most assumed business logic, I know, but the idea would be to do more than just become more bloated. The company has all this money that could use investment. It could create an obvious internal challenge with a focus on something it could make happen rather than the fuzzier "get bigger." It could grow and make more revenue and profit as the natural byproducts of trying to achieve something concrete.

I think the psychological quirk of trying to control numbers and creating strategy as a result instead of the other way around is a definite problem in business. It led to the current mortgage market, to over-investment in the 1990s, and to many other general business failures. You don't get someplace by wanting to have fame as an explore; instead, you get fame as an explorer by heading to the North Pole. It's a lot harder, but ultimately more rewarding for management, for exmployees, and for investors.

Wal-Mart's New Gas Price Campaign

I was watching some network television last night and saw a Wal-Mart commercial in which actors talk about the price of gasoline but then say how they won't let it dictate their lives - and, presumably, going to Wal-Mart is one of those life choices.

The commercial seems quite peculiar to me, and I wonder if this isn't a sign that something is seriously wrong with Wal-Mart's marketing and business strategy. First, gas prices have come down, oh, a good 30 to 40 cents a gallon here from the spike earlier this year. I suspect they're down around the country as well - and I also think that consumers have made their peace with prices. Certianly they're not giving up shopping for what they need. (In fact, last night I heard a number on NPR that pegged it at 40 cents overall since spring.)

So you'd think that the commercials are runnning at least a month late, and are really negatively-based. They argue not to give up life style choices - no matter what the price, which, I guess, is easy enough to do if your annual business equals many national GNPs. But there is no reason to go to Wal-Mart. If gas was such a problem, why not roll out Wal-Mart gas stations with subsidized prices to get people to the stores? And other stores, like Target, seem to be weathering the economic issues, which hit most equally.

But Wal-Mart has been blaming gas prices for recent poor performance. Maybe the problem is not gas prices, but strategic decisions. Perhaps they've gained too much bad will through their own actions in dealing with labor issues. Perhaps people are angry about outsourcing and see Wal-Mart as selling out to China. Maybe the idea of having superstores apart from malls, where people can more efficiently shop, is the real problem. (I wonder what the company's same store sales are in mall locations versus standalone.)

Whatever the issue is, I don't believe it's largely driven by petroleum. Yet the commercial, along with Wal-Mart's remarks to Wall Street, show this as an officially adopted excuse. Maybe it's time for upper management to look and see whether there might not be more serious issues - for example, the well-publicized internal company report on mistakes in moving outside the existing brand. There is something more going on inside the company. Trying to find the logical explanation for investors won't solve anything and will only get management more determined to keep the blinders on.

Wal-Mart Shows Problem of Moving Outside of Brand

The New York Times has a fabulous piece on Wal-Mart's attempts to expand its brand outside the strictly discount realm and even posts a report done for the company by its former advertising agency last October.

It's interesting to get an inside lok at the troubles Wal-Mart is having in expanding its market. I find myself almost feeling sorry for management there because of the relentless drive of financial markets to keep seeing growth. The company has 138 million shoppers a week, for gosh sakes. Just how are they supposed to grow a number like that?

Yet that is the expectation, and so Wal-Mart is trying for more affluent shoppers. But that goes smack up against its brand identity as a discounter, which is a bad idea. No company can be all things to all people, no matter how large it is. As the story and report say:

But now, as Wal-Mart experiments with contemporary clothing, flat-screen televisions and nine-layer lasagna, that format has become a hindrance. To a shopper who wants to purchase a single dress for an evening out or a DVD player to watch a movie, "Wal-Mart’s one-stop shopping format becomes a time-consuming irrelevant obstacle," the report says.

That environment is conducive to "zero-time" shopping, in which a customer spends just a few seconds thinking about a product, like a new bottle of dishwashing soap. "But people don’t buy electronics, home décor and apparel in zero time," the report says.

The inevitable result is a loss of focus that will eventually cause financial problems. You'd think there could be other options for the company. For example, let it ship orders of commodities to more affluent customers - products they're associated with but at higher margins for the convenience factor. Maybe there are services they could provide as shoppers spend time in the store - dry cleaning, oil changes, photocopying - that don't require the sense of expertise and trust. Some of these it could provide through partnerships with companies that are already in the business. But going upscale? Time to send management out into the stores to work for a week and see what their business is really all about.

Dell to Sell in Wal-Mart - Future Profit Hell?

Dell is going to start selling two sub-$700 model multimedia computers through Wal-Mart. According to the New York Times story, and other analysis I've seen, this is the first step to Dell reforming its sales strategy so that it's not entirely dependent on direct sales.

I think it's also the beginning of the end for the theory that Dell can do no wrong. The PC business has extremely tight margins. Dell has been able to keep it's profits about three times that of its competitors. According to electronics market analysts I've spoken with, it has done so by beating up on its suppliers. From what I've heard - and I've tried talking to Dell about this in the past, but they wanted no part of the story I was writing at the time - the company pushes prices down so far that the vendors essentially have no profit, and then says that the manufacturing volume will give the vendors the economies of scale to make bigger profits from their other customers. In other words, the manufacturers are supposed to have other customers essentially subsidize Dell's business.

Some have pushed back. When Dell was coming out with its first PDA, for example, there were three firms bidding. Then Dell said what it wanted to pay and allegedly two of the Asian manufacturers walked away from the business because it didn't make any sense to take it. In an industry used to margins of just a few percent, that would have had to be a low number, indeed. Also, some of Dell's suppliers have been hearing from their other clients who have said, "Don't expect us to fund your work with Dell."

There is probably little to no room to move on the price of components. So, from where is the margin for Wal-Mart going to come? It will have to be Dell's margins. Now consider the volume of business the retailer does. This is going to change the overall margin that Dell sees, and that's even before the additional sales support demands that will drive Dell's already over-burdened and under-performing technical support function to needing life support itself.

Eventually companies come across the realization that growth isn't infinite and that high industry margins may not be sustainable. Hopefully for Dell its investors will be understanding, but that's even less likely.

Learning from Retail Profit Growth

Kohl's, JC Penney, and Nordstrom all saw their first quarter profits jump, respectively 25, 13, and 19 percent. The first two attribute the jump to private label goods, while the last said that its customers seek designer goods.

But even the private label work is being designed by names - Vera Wang and Polo Ralph Lauren, for example. Maybe consumers are getting tired of paying for junk. That's not to say designer labels are necessarily better, but at least there is that buyer association. And it's the design name that seems to be important. Yet by doing more private label work in particular, the companies cut out layers of expense, which is why the profit jumps were so far ahead of revenue lift. Penney's revenue was up only 3 percent, while Kohl's was up 12.5 percent and Nordstrum's same store sales rose 9.5 percent. At the same time, Federated missed analyst expectations and there are warning sounds coming from Arkansas as Wal-Mart says it, too, could fall short of Wall Street targets. Clearly the two should be looking at what their competitors are doing right.

Kroger Taking Marketshare From Wal-Mart?

Cincinnati-based grocery chain Kroger is actually taking market share in groceries from Wal-Mart, according to a story in the Cincinnati Enquirer. According to some analysis - the article doesn't make it clear who did it, "a recent building binge of supercenters by Wal-Mart not only failed to garner it more market share, but may have led a growing number of shoppers to seek out Kroger's neighborhood shopping approach."

In addition to emphasizing convenience, Kroger is closing the price gap.

A pricing analysis by Bank of America analyst Scott Mushkin last fall found that Kroger's prices were 7.5 percent higher than nearby Wal-Mart supercenters, compared to 20 percent to 25 percent five years ago.

Kroger chairman and CEO said that his company has increased marketshare in 27 of "34 major markets in which supercenters have achieved at least a No. 3 market share." Here's Wal-Mart's statement:

"We continue to grow and have regained position as No.1 on the Fortune 500 list of companies ... We are a No. 1 shopping destination for Americans. New customers continue to go to supercenters, particularly in Ohio."

So what's to learn? Wal-Mart's reliance on a rhetorical response is, I think, telling. There's no way I can know if the numbers that Kroger claims are correct, but logic is on their side, in a way. No company can own all marketshare, and no one approach works everywhere in every category. I'm not sure that consumers would view groceries as a category in which prices are too high, and so might not consider Wal-Mart. Or it could be that people don't like the idea of shopping in a big box environment for all products.