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.
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.
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
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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."