Forbes
Wal-Mart's next victims
The world's largest retailing machine is always looking for new worlds to conquer. Here are 5 that look particularly vulnerable, including banking and electronics.
When Toys "R" Us said in August that stiff competition from mass merchant Wal-Mart Stores was making it consider exiting the toy business, the news struck fear in the hearts of retailers everywhere.
After all, Toys "R" Us (TOY, news, msgs) pioneered the "category killer" concept that's now employed by big-box specialty stores like Best Buy (BBY, news, msgs), Home Depot (HD, news, msgs) and Bed Bath & Beyond (BBBY, news, msgs). The notion of creating giant specialty stores that cater to a particular product segment has become a staple of the U.S. economy. But Wal-Mart (WMT, news, msgs), the antithesis of a category killer with aisles stocked with a vast spectrum of products, is posing a dire threat to this way of business.
Wal-Mart had sales of $259 billion for fiscal 2004, ended Jan. 31, ranking it as the world's largest retailer. That sheer size has vaulted it to the No. 1 spot in categories as disparate as food, apparel, jewelry and home furnishings. For fiscal 2005, Wal-Mart plans to add 310 new stores and 30 new Sam's Clubs to its stable of 3,625 locations. Oppenheimer retail analyst Bernard Sosnick expects that by 2010, Wal-Mart will have 3,000 supercenters, up from 1,600 this year, and total company sales of half a trillion dollars.
That kind of growth will make Wal-Mart No. 1 in plenty of other product categories soon enough, and it will put an even tighter squeeze on existing players in arenas that Wal-Mart already dominates, like apparel and food. With a lion like Wal-Mart on the loose, no store is ever safe, but here we've identified five categories that that look particularly vulnerable to its looming threat.
New on Forbes.com
Consumer electronics
Wal-Mart is the second-largest consumer electronics retailer in the U.S. behind Best Buy, but it won't be for long. This spring, it rolled out a private-label electronics line, ILO, which thus far includes low-priced 42 inch plasma TVs, LCD monitors and DVD recorders. That move put electronics stores large and small on notice, as have Wal-Mart's efforts to boost its brand partnerships, introducing Sony and expanding its relationships with Panasonic and RCA. Says retail analyst Howard Davidowitz, "They are going to fry Best Buy's brains out."
Banking
The superstore has been trying to get into banking for five years, but its efforts to buy banks in California, Oklahoma and Canada were thwarted by regulators. Wal-Mart has a ready-made market at hand: 20% of the 100 million customers that come through its doors weekly don't have bank accounts. The chain already offers financial services such as check cashing, bill payment and money orders, and it boasts 28 Wal-Mart Money Centers, which are operated by SunTrust Banks, as well as hundreds of other in-store bank branches. The company says it has no plans to get into retail banking, but industry sources say Wal-Mart is still pushing this agenda quietly and is expected to take another run at banking again.
Pharmacy
Wal-Mart ranks fourth in the pharmacy business, behind giants Walgreen, CVS and Rite Aid, according to the National Association of Chain Drug Stores. But it is upgrading its profile, rolling out a handful of 24-hour pharmacies in August. Pharmacies are low-margin propositions, and people with health insurance who pay only co-payments aren't price-sensitive. That could put a kink in Wal-Mart's strategy of squeezing supply chains to push down retail prices. But for the shoppers who don't have insurance, many of them its customers, Wal-Mart's brand of competitive pricing would be just what the doctor ordered.
Gasoline
Gas pumps are a huge traffic driver for Wal-Mart. There are 1,555 stations on Wal-Mart properties, 300 of which are operated directly by Wal-Mart's warehouse arm Sam's Club and the rest by third-party vendors like Murphy USA (MUR, news, msgs). Launched in 1996, its pumps already have a 3% share of U.S. retail gas sales -- the 10th largest in the U.S. As Wal-Mart's share grows, the only question is whether Wal-Mart will oust its vendors and go it alone. Independent gas suppliers are growing as the oil giants spin off their refineries, which makes that kind of a move plausible, and the sheer number of Wal-Mart locations makes it an appealing partner. Says retail analyst Kurt Barnard, "The volume they could offer would be of enormous interest to refineries."
Fashion
Wal-Mart may lead the apparel market, but it does so with the sale of mundane items like underwear, socks and sweatshirts. Analysts say that Wal-Mart is losing sales of fashion items to companies like J.C. Penney (JCP, news, msgs), Kohl's (KSS, news, msgs) and Target (TGT, news, msgs), which has had particular success with its lines from Isaac Mizrahi and Liz Lange. Wal-Mart is now gunning for a hipper milieu with George, the No.1-selling British apparel brand that Wal-Mart landed when it bought its parent, U.K. retail giant Asda, in 1999. Wal-Mart also stocks the Mary-Kate and Ashley line, licensed from the famed Olsen twins. Look for the retail giant to start sprucing up its clothing displays and marketing these brands more heavily as it reinvents its fashion sense.
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