Saturday, March 12, 2011

Can Walmart make Express work?

Walmart’s business model is one that evolved from a tiny retail store in Bentonville, Arkansas to becoming the world’s largest retailer. Consequently, the corporate structure of the company, from top to bottom, thinks big, acts big and they are exceedingly good at being big. If a small company were to attempt to implement Walmart’s business model today, they would surely fail. It took Walmart decades to reach their size in a time when getting big was what business was all about.

Walmart is no miracle. There appeared a small window of opportunity when a small man with a big idea happened to show up at a precise moment in time and did everything required to make it work. There will never be another Frank Sinatra, Elvis Presley, Sam Walton, JFK, The Beatles or Ronald Reagan.

Prompted by shareholders demanding higher profits, Walmart has been dabbling in smaller footprints for some time and has not done particularly well at it. It’s not the first time big companies have run into trouble when they have tried to think small. Downsizing a large business model is a horse of a different color and there are many examples of such failures for us to draw from.

Did you know that Xerox invented PCs, networking, the laser printer, the graphical user interface (GUI a.k.a. goo-ee) and the mouse? It’s possible they could have become the world leader in small business computers, but they didn’t, and the reason they failed to act is because the venture would have required the company to think small. Xerox’s then current business model did not include instructions on how to develop a smaller footprint and the suits at corporate headquarters hesitated. Maybe they were smarter than we think. As a result, they allowed Steve Jobs to copy their plans for the GUI and the ‘mouse’ to create the Macintosh, and Bill Gates copied the same ideas to create Windows. IBM, realizing they lacked a business model for a smaller footprint, outsourced their entire PC venture to third parties, financed it, and ended up losing it all.
There are several other examples to draw from, but one I am particularly familiar with is IBM’s PS/2 boondoggle as they attempted to wrest the small business computer market away from their smaller competitors. In 1986, IBM was much stronger than Microsoft and money was a non-issue. The problem was the tremendous bureaucracy that made up the behemoth’s top-heavy infrastructure. Back then, it was often said it would take IBM six months to ship an empty box. They proved once and for all, huge enterprises rarely do well when they attempt to dabble in smaller business models. There’s simply too much pressure coming from the top to maintain the status-quo.

In the November 1, 2010 edition of Supermarket News the author wrote “the investment in Neighborhood Market stores has come down considerably over five years, and [Walmart] is now investing 78% of what it used to.” Note: I did a little research and discovered Walmart only opened 181 locations since it established its first Neighborhood Market store in Bentonville, AR; far below its original projection of 350 by 2005.

If Walmart knew how to run thousands of small convenience stores, I think they would have run everyone else out of the market eons ago. 7-Eleven doesn’t appear to be afraid of Walmart and I think we can take heart from this.  7-Eleven, on the other hand is another issue. As more and more are expressing concerns about Walmart’s future plans, 7-Eleven is growing by leaps and bounds.

I’m more than just a little bit curious. If Walmart’s predictions on the success of Neighborhood Markets fell short, what makes them think even a smaller footprint will be more successful?

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