With Wal-Mart (WMT) sales and profits falling, pundits are asking if the economy is again headed down. Hardly, like IBM (IBM) and other business icons in trouble, the Arkansas retailer is simply being squeezed by better competitors—and mostly Americans—who herald a new age of American innovation.
Wal-Mart’s recipe for success was simple. Through a detailed knowledge of supplier costs, disciplined supply chain management and low wages for store personnel it bargained hard with manufacturers and delivered goods at the lowest prices.
Unfortunately, its methods were hardly occult and others like Dollar General (DG) and Target (TGT) caught on, undermining the Arkansas behemoth’s competitive edge. Moreover, along with other big employers like McDonald’s (MCD), Wal-Mart is under increasing social political pressure to pay workers more.
Wal-Mart attributes 75 percent of its drop in projected earnings to raising entry level wages to $9 an hour, but employers don’t get much paying a single mom so little. Shoppers complain its stores are unfriendly, messy and often poorly stocked.
Other bargain retailers are suffering a similar malaise, because millennials—and older folks willing to change buying habits—can get better products, cheaper on-line.
For $99 a year, Amazon Prime provides prime-time TV and free shipping directly from the folks that make products. That virtual marketplace offers more choice, competition that drives down prices, and cuts out altogether the retail supply chain—shipping to warehouses and stores, and retailers inventory carrying costs. That drives consumer prices to their lowest possible level.
Brick and mortar is not going away but simply when consumers know exactly what they want they can save even more by avoiding the cost and pain of negotiating Wal-Mart’s congested parking lots and “courteous” employees.
Alas, much the same is happening over at IBM.
