Why Walmart Is Losing The Retail Crown
Walmart In Trouble
This past Wednesday, Walmart Stores Inc. saw a plunge in stock price that wiped out $18 billion of the company's market value. This happened on the back of news from senior management that the company expected to suffer a 6% to 12% earnings drop in 2017.
As Walmart continues to lose market share, other retailers benefit. And not just the Targets and Costcos of the world, either; small independent retail stores are becoming an increasingly serious threat to Walmart.
There are many factors effecting Walmart's decline, but some are simply too big to ignore.
Slow Domestic Growth
The goal for any retailer is to build stores that grow their sales and expand their footprint. To measure a retailer's success, we look at both the overall growth rate and the same-store sales growth.
Walmart's overall U.S. sales have not been growing as fast as overall U.S. retail sales. Only once in the past 19 quarters has Walmart grown its sales as fast as the rest of the U.S.
On same-store numbers, Walmart has seen sales fall from the beginning of 2009 to today. This is especially bad news, because during that time, the U.S. economy has been recovering and consumer spending has increased.
One might suspect that a successful U.S. retailer could expand overseas simply by repeating the process that worked domestically. In reality, it's not nearly so simple.
To begin with, a retailer has to overcome cultural differences, local shopping habits, and brand preferences. The problem becomes harder still when considering distribution networks that operate differently based on a country's infrastructure. Even something as simple as road conditions can make it difficult to get product into stores for a retailer.
Walmart has already ended ventures in Germany and South Korea. It has struggled in India, ultimately buying a local partner in 2013. There have been problems with mislabeled meat in China and disappointingly low profits in Brazil. The bottom line is that these failures impact company financials significantly.
Another way to measure a company's success is return on investment. This is essentially profit made on each dollar invested. Walmart's return on investment has been steadily declining since 2010 and shows no sign of letting up. Back in 2010, Walmart showed ROI of 19.25%. That number has fallen steadily to today's value of 16.25%.
Low Customer Satisfaction
Walmart's problems are deeper than cut and dry money numbers. Customer satisfaction is at an all time low. For a 2014 survey by the American Customer Satisfaction Index, Walmart ranked lowest with a score of 68 versus the average score of 88.
More troublesome still is that this is the eighth consecutive time that Walmart has ranked last. When the U.S. economy was in recession in 2008, Walmart fired around 12,000 employees. Without enough employees in the stores, customer service took a huge hit.
Walmart once enjoyed a unique position of selling goods at big discounts. That uniqueness was lost with the emergence of online retailers like Amazon. Once customers started seeing that they could get good discounts from the comfort of their homes, they stopped frequenting the understaffed Walmart stores. Ultimately, Walmart lost the pricing war, as they were unable to offer better discounts than the online retailers.
Poor Inventory Management
For a long time, Walmart was not managing its inventory properly. In just the year 2013, Walmart lost sales worth $3 billion due simply to out-of-stock issues. This all came back to a faulty internal communication system. The company would run out of stock on products that were in demand, and overstock unwanted items.
For a small retailer, there is much to learn from the mistakes of Walmart. Even if a retailer isn't considering expanding to international markets or managing a multi-billion dollar inventory, there are lessons to be found in the struggles of a once mighty retail giant.
To the prospective dollar store owner, gone are the days of worry over Walmart's dominance in the retail space. Now it's Walmart who has to be concerned.