Heard on All Things Considered today that Wal-Mart has plans to build 50 new stores in inner-city neighborhoods – while at the same time providing “seminars” to existing store owners on how to compete with Wal-Mart. Public relations move, I guess, trying to shed their "black hat’ image. But what struck me was that reporter, or somebody, said Wal-Mart “needs desperately” to expand into the inner-city neighborhoods because . . . well, near as I can figure, because that’s the only place they haven’t yet reached. No mention of whether they figure they can actually turn a profit there. No mention of whether they’re in any kind of trouble with their existing chain. The story mentioned that “90 percent of Americans” already live within 15 minutes of a Wal-Mart.
Why does a chain of stores have to keep expanding until it’s filled every available niche? It’s like “growth” has become an end in itself for business, completely independent of the bottom line. In biology, something that acts like that is called a cancerous tumor.
I don’t suppose it’s such a bad thing for the residents of those inner-city neighborhoods. With their incomes, they need discount stores a lot more than the rest of us do. And if the Wal-Mart stores go belly-up, the buildings will still be standing and some other entrepeneur will snap them up cheap and put them to some other use. As for the Mom-‘n’-Pop stores – maybe those seminars actually work.
Given its margins, growth is the only way for Wal-Mart to meet shareholder expectations. Wal-Mart will not meet expectations if it sits back and says, “Last year’s numbers were good enough, just repeat that.” It needs to take the profits it has earned, and turn them into producing assets (new stores). Opening new stores will increase revenue to a much greater degree than trying to expand existing store sales. Existing stores have relatively little room for the sales growth needed to appease the shareholders.
Well, I’d think it would be a perfect fit myself. Why WOULDN’T Walmart want to expand into areas where it will be in demand (i.e. inner-cities)? Sounds like a no brainer to me.
Filled every available niche that it can fill? Why? Money of course. Dirty profit. I know it shakes your sensabilities BG, but really its that simple. Again I have to ask…why WOULDN’T a company want to expand into every profitable niche it could expand into? To give the competition in those niche’s a break?
Well, they (collectively) own the company. If the Directors do not meet shareholder expectations, the share price will drop. When it drops enough, some Smarty Pants will buy a controlling interest and fire the Directors.
Maintaining (and increasing) share price is a self-defense mechanism for the managaement.
Further, as an investor I am in fact doing all right. I would like to do a little better of course.
Also, investing in Inner Cities is in many ways a back to Wal*Marts roots.
Whatshisname was building huge store in little hick towns other chains overlooked. There was a lot of business in those flyover places. In the same way, the Inner Cities can be said to be overlooked. I bet there is a lot of money to be made there too.
Inner cities are traditionally in bad shape economically, with high unemployment. Throwin’ down a WalMart sounds like a good way to load up on desperate employees they can exploit for a long time, considering they’re (or eventually will be) the only game in town.
But, that’s just my point. It’s not obvious it will be profitable expanding into a market where they might sometimes have to accept payment in food stamps. They’re going just because it’s there. Good attitude for a mountain climber, not for a business enterprise. In any case, what gets me is the “desperately needs” thing. Why does Wal-Mart “desperately need” to open a store in the 'hood? What bad thing will happen to them if they don’t? There’ll still be Wal-Mart stores in every 'burb and strip mall 10 years from now.
Of course they figure they can turn a profit there. This is Wal-Mart we are talking about.
This is kind of a silly analogy. A more apt analogy would compare the way Wal-Mart has evolved to dominate the business world to the way humans have evolved to dominate the earth. Wal-Mart is the best at what they do, and thus they can make money (survive) in situations that other business can’t.
ding ding ding.
And for those of you who think Wal-Mart shouldn’t grow so much, I have a question for you: Why do you hate poor people?
True…I just doubt that Wal-Mart stores will go belly-up. If Wal-Mart can’t succeed in an area, what business can?
They probably won’t. It’s a pretty obvious publicity ploy. But I don’t really care either way.
You probably think that because you don’t run a business. No successful business just grows for the sake of growing. The owners pursue growth because they want to make more money. I don’t see why that’s so hard to understand.
Pretty much every business out there would love to dominate its market niche. That just doesn’t happen often because it’s so freakin’ hard to do. Walmart doesn’t literally dominate, but it comes as close as anyone (except maybe the real evil empire, MSFT ). What’s unique about WalMart is not it’s desire to grow, but it’s ability to do so.
Target ain’t gone belly-up yet! And I like their selection better anyway.
Don’t you think it’s possible to take that kind of thinking too far? Very close to where I live, there used to be a little strip shopping center, right across the street from a CVS drugstore. There was a cheap Chinese restaurant, a Gumby’s pizza parlor, a small beer-only bar with karaoke . . . I did a lot of business in that strip center and appreciated its convenient presence. Then whoever owned the lot sold it to Walgreen’s, who tore down all the shops and put up a Walgreen’s store, just to drive the CVS store out of business. Head-to-head corporate war. It’s too soon to say whether it will work or whether the neighborhood can support two drugstores. But if that CVS closes, I will drive far, far out of my way rather than give Walgreen’s any business, and I’m probably not the only person in the neighborhood who feels that way.
For years Wal-Mart got blasted because of its alleged unwillingness to put stores into inner city neighborhoods. Now it’s getting ripped because it wants to put stores into inner-city neighborhoods.
Demographically, a lot of inner-city neighborhoods shape up to be more profitable than the rural areas where WM dominates. And if WM succeeds where others (KMart, to name one) have failed, more power to them.
Once upon a time there was a Sears in damn near every town in America. And a Woolworth’s. And a Chevrolet dealer. Were they also examples of “cancerous tumors”?
Of course it’s possible. But your assumption that WalMart is growing for the sake of growth is almost certainly not true. And the thing about WalMart is they can afford to fail. I’m sure they’ve done their homework, but if it doesn’t work they’ll have learned something and will either tweak their business plan or try something else.
I’m not sure what alternative you’re proposing-- that all businesses stay static and never move outside their sphere? Obviously that’s a strawman, but in all seriousness, what is the alternative?
Couple of things here. First off, unless you think Walmart is composed of fools, they have already looked into the business model…and found it favorable. Just because YOU can’t see whether its obvious or not that it would be profitable doesn’t mean that in fact there is any real question.
Secondly, not being privy to Walmarts evil inner circle, I can still see that moving to the inner city is a good move for them. They sell cheap goods at rock bottom prices…sounds like a marriage made in heaven to me BG. IOW, poor people make up a good percentage of their customer base and economic model…so moving closer to them is a GOOD thing all around.
Where you get the impression that the inner city environment (in America for gods sake) is a desolate 3rd world poverty stricken environment where people are starving and only have food stamps to trade is beyond me. Having grown up in a ‘hood’ I can tell you that there is plenty of money there for folks to shop at the likes of Walmart. I’d hazard a guess that inner city dwellers ALREADY shop quite a bit at Walmart (they do in my home city)…they just have to drive there now. Its worth it to them though to spend the gas for the cheap prices and one stop shop. Having a Wally world right there in the hood…well, I’d say the general attitude would be ‘life is good!’.
The difference is that a Chevrolet dealer will only potentially put other car dealerships out of business if it has the power to advertise, employee more people and offer more chevrolets at a lower price.
Walmart will put dozens of companies out of business, and has, and strives to do so. Not only grocery stores, qwiky marts and gas stations, but clothing boutiques, drug stores, toy stores, craft stores, shoe stores, automobile parts, housewares, repair, garden centers…and anything else.
This actually seems like a Good Thing[sup]TM[/sup]. Inner-cities often lack grocery stores and such, and as a result the lower-class inhabitants pay more for groceries and such because they have to shop at Mini-marts and other small shops. It seems like a good fit.
What business doesn’t strive to put it’s competitors out of business? WalMart is just better at doing it than most.
If those other companies can’t compete on price, then they’ll have to compete on something else. (BTW, we’re talking about the inner city here, so “garden centers” is kinda stretching it a bit, don’t you think?) And you are aware, of course, that the grocery store you are so fond of put a butcher, green gorcer and dairy out of business when it came into town, too. Now, if you want to return to a time of Medieval Guilds where stasis was the goal, you’ll have to move to another country… or another time.
Once upon a time you could go to Sears, Pennys or Montgomery Ward (to name three) and buy clothes, hardware, furniture, appliances, eyeglasses and get your car fixed all at once. If the store near you didn’t have it in stock, you could order out of a catalog and have it sent to your home. Sears even sold build-it-yourself house kits (somewhat successfully) and automobiles (not successfully.)
In St. Louis, there isn’t a supermarket on the north side of the city (and this in an area where locally owned chains dominate.) Nor is there a KMart or a Target or a Home Depot. The nearest department store is the lone remaining one Downtown. I say if WalMart wants to take a chance, let them.
). What’s unique about WalMart is not it’s desire to grow, but it’s ability to do so.