Posts Tagged ‘Wal-Mart’

Scattergun Target expansion

March 13, 2009

You may recall my discussion in January of the nifty Wal-Mart expansion graphic at Flowing Data.

Well, they’ve delivered another one. This time it’s fellow US big-box discount retailer Target under the microscope. Click on the pic below for the animated graphic thingie.

target-growth-path

The big insight from this new map is that Target did not adopt the oil-slick style growth we saw with Wal-Mart. The expansion here is much more opportunistic, as they jumped back and forth across the nation.

It took the firm considerable time for them to fill in a lot of gaps. It does raise questions about their scope to build sufficient economies of density.

Target is not an international retailer, so this is their entire growth story. For any Australians scratching their head, our Target is a rather ancient logo licensing arrangement (i.e there is no relationship between Wesfarmers and the US firm).

Let’s hope the next firm to get the Flowing Data treatment shows some international expansion.

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A competitive spectacle

February 24, 2009

There was an excellent discussion of the Australian spectacles market in today’s Age newspaper.

A previously docile market dominated by a very large player in the midst of hundreds of effectively sole traders has been shaken up considerably by the entry of British outfit Specsavers.

The incumbent giant is the Italian firm Luxottica who added the OPSM and Laubman & Pank marques to their globally known Sunglass Hut brand via an acqusition in 2003 (as discussed in my chapter in a book called The Internationalisation Strategies of Small-Country Firms).

They may be #174 in Deloitte’s Global Retail Powers rankings, but have clearly struggled when challenged by a lower-priced, more streamlined competitor. Luxottica are a curious player in the optometry business, as they were once only a manufacturer and have vertically intregated forward into the retail business, without obviously passing on any cost savings to consumers. Their stores are typically positioned as quality, fashion-conscious purveyors.

opsm storeIn contrast, Specsavers have grown fast in their home-country, Ireland, Spain and Scandinavia through a more thrifty range of offerings and aggressive pricing. It is fascinating that Australia has become such a big target for this mob (we may soon by 15% of their business). Presumably this reflects their own observation about the easy goals that can be kicked on this previously high-margin playing field.

As the article notes, Specsavers are not the only new entrants. Woolworths is experimenting with even more pared back concern through their Big W variety stores. This may well also be a testing ground for Woolies as it prepares itself for another inevitable attempt to tackle the pharmacy regulations and become even more Wal-Mart-like.

It was always going to be hard for Luxottica to build considerable barriers to entry in this business, as there are a lot of optometry outlets (and optometrists) to be snapped up by an aggressive entrant. The challenge is now to adapt their business strategy to this new competitive dynamic.

As a glasses-wearer, I say bring it on!

Disruptive technology amplified

February 18, 2009

I’ve posted on here before about the changing dynamics of the music industry. This interview with marketing guru and bigtime blogger Seth Godin highlights a raft of substantial and probably irreversible shifts that continue to bewilder the big record labels (See also his rearticulation of these ideas on his blog).

Godin has a neat take on the changes too:

This is the greatest moment in the history of music if your dream is to distribute as much music as possible to as many people as possible, or if your goal is to make it as easy as possible to become heard as a musician. There’s never been a time like this before. So if your focus is on music, it’s great. If your focus is on the industry part and the limos, the advances, the lawyers, polycarbonate and vinyl, it’s horrible.

Music disruptive technology iPod beats CDLet’s put this into the language of strategic management ..

Disruptive technologies (internet, low-cost recording and dissemination of audio and increasingly video, filesharing) have diminished considerably (if not almost absolutely) the power of previously dominant players in the field. This includes not only the record labels but also radio, MTV and their cohort channels, bricks and mortar retailers, and producers of CD players and CDs.

Massive shifts in distribution channels away from many of the aforementioned mechanisms. Indeed we have seen almost a polarisation whereby there a few huge-scale outlets for buying digital recordings (i.e. iTunes, Amazon) and small ranges available in large scale retailers (WalMart, Target etc), and then an enormously lengthy tail for buying digital, CD or even vinyl, often directly from the artists, from indie labels or well-conceived aggregators (like CD Baby). And, of course, a huge proportion of the product is exchanged for free through filesharing.

These two phenomena have indeed changed the world of music as we know it. This is a fascinating case of disruptive technology, as it remains very unclear which businesses have gained from this huge shift in the nature of the value chain. You could argue that Apple has through its i-empire, but I’d hazard a guess that their revenue gain does not outweigh the losses of income to the record labels etc. Similarly, it does not look like the innovators (i.e. those responsible for MP3s, file-sharing protocols etc) have reaped much in return.

moroccan-musos-djamaa-el-fnaAs Godin indicates, it would seem it is the musicians who hold much of the power now. The major barrier to entry of olden days – a major label recording deal – has fallen.

The marketing requirements have shifted considerably, with much less uniformity in the approach taken. Mainstream music has faded from our culture as smaller and smaller niches open up as viable and vibrant communities of interest.

It is unclear that major record labels have any competitive advantage at all in such domains. Indeed their credibility is highly questionable, and, with integrity and uniqueness so highly valued, their patronage may well be a burden for new acts. Indeed it appears possible to build a substantial following without a label or indeed much pay-to-listen product (as exemplified by the case of Aussie outfit Short Stack or US singer Corey Smith).

Musicians face considerable diversity of possible revenue streams, many of which are not subject to extreme bargaining power (merchandise, live performances, personal CD sales (i.e. at performances/appearances)), or offer considerable returns for limited effort (licensing of songs to video games, movies, advertisements). Increasingly there is little need to utilise the record label to tap these streams. I’ll finish with another quote from Godin which should remind artists where the gold may lie:

The idea that you could have a micro-market of 250, 500, 1,000 copies of a CD every night is a totally different way of thinking about what you do for a living, rather than making one album a year marketed with payola and promotion that reaches a certain group of people and ignores everybody else.


Can Aldi beat Wal-Mart?

January 21, 2009

Wal-Mart is often held up as the embodiment of a low-cost, efficiency-driven competitor. It has been argued forcefully that the world’s largest firm has pushed the US retail scene towards one where price and economies of scale are paramount. But what if someone could drive costs even lower?

aldi-logo1That is the question being asked as German discount giant, Aldi, scales up its US presence.

Aldi has been in the US for over 30 years. It was the second overseas venture for Aldi Sud after Austria (Aldi has two distinct arms – Nord and Sud – who have split the German and other markets for decades). Nevertheless it only operates in 29 states with around 1000 stores, and only comes in as around the 11th largest US supermarket chain (and that is when bundled with its Trader Joes’ business – the Aldi brand is the 24th largest).

The excitement being generated is about Aldi’s business strategy. Put simply, they offer very low price groceries to the market. They are able to do this by reducing choice (i.e. less variety within product categories, and less categories), and then making sure they have very significant bargaining power with regard to the products they do sell.

This bargaining power is at the supplier end. Aldi stocks mainly private-labeled products and thus is able to build considerable scale in purchasing, as well as not bearing any passed-on marketing and branding costs from producers. aldi_muesli_bars_pdThey also maintain unambiguously austere facilities. Consumers know they’re getting a bargain and can see the cost savings all around them.

In a time when consumers are becoming very price-conscious, such a niche is well-worth pursuing. There seems very considerable scope for Aldi to expand within the US. It is most likely they’ll take market share away from all supermarket chains they encounter, but it is very possible that Wal-Mart could be the most susceptible to Aldi’s growth.

Wal-mart has been surprisingly non-committal to the grocery component of its business, despite it making up around a third of their revenue. This may well be because it has not achieved the same level of margins here as it does with clothing, electronics etc. The Business Week article does imply that some of its grocery offerings may well be loss leaders. How will it deal with a situation where consumers can see even cheaper options at Aldi?

As an aside for Aussie readers, the Aldi expansion down under proceeds at a very brisk pace.

Spreading like Wildfire – Wal-Mart on the move

January 8, 2009

I stumbled across this very neat graphical representation of the growth of the world’s largest firm, Wal-Mart (Click on the picture below to see the video play through).

wal-mart-growth2

It is a wonderful illustration of the “oil stain”-style expansion that has been identified for other retail players such as Zara and Westfield.

The Zara approach is to open a flagship store in a city/state and then follow it up with saturation of the local market with smaller stores (and other brands from the Inditex stable like Bershka, Pull and Bear and Massimo Dutti). The firm argues that this allows them to build sufficient economies of scale in distribution, marketing etc.

For Westfield, it meant tackling the US as a series of much smaller markets and building their brand and market knowledge in each location.

Wal-Mart appear to have taken a similar approach to Westfield, but obviously on a much larger scale in the pursuit of what Thomas Holmes has called “economies of density“.

Again, it is a huge shame that the Wal-mart data is only presented for the US. It would be great to see their expansion into Canada, Mexico, Germany, Japan, the UK etc. Presumably this oversight springs from the data source.