Editor's Journal: What does Wal-Mart know that others do not?
A New York Times report about the staying power of old technologies offered provocative insight into survival tactics that could well apply to businesses across the board. Reading the article, I was reminded of doomsayers of yore â€” you know them too, the ones who predicted that TV would kill radio and movies and that cars, trucks and planes would be the death of railways. Around here, we ponder whether the Web will supplant the print side of the media.
Thankfully, in our case at least, that is not likely to happen anytime soon based on the results of our recent readership study in which the majority of respondents indicated they still prefer getting information from the printed magazine. This does not mean we can breathe easy and stop reinventing ourselves, however. That goes for all businesses, for all segments are caught in the eye of the perfect storm called the economy in one way or another. Survival is the name of the game more than profits and growth, in some cases.
Make no mistake, this is a high-stakes game that begs for shrewd players at the table. Wal-Mart and its co-founder Sam Walton come to mind in this regard. Based on reports, all six of Wal-Mart’s merchandise units (grocery, entertainment, health and wellness, apparel, home and hardlines) “achieved comparable stores sales increases” in the June 2008 five-week survey period. The same is true for the Sam’s Club division. Wal-Mart also sells gasoline, often substantially below regular pump prices. Combined sales for both operations increased by 11.5 percent over the previous year’s performance.
“We continue to see a shift in the overall mix toward fuel, food and consumables, as our members manage through the current environment,” reports Doug McMillon, Sam’s Club president and CEO. “Small business is especially price-conscious in this environment, and we remain committed to delivering value for them.”
So what does Wal-Mart know that others do not? The short answer is how to keep prices low enough to satisfy its customers.
Sam Walton, company co-founder, may easily go down as the best businessman the world ever produced. His concept of bringing low prices to the masses not only proved to have staying power, but the company he co-founded is changing the way Big Business is run. Consider that meat and poultry companies are willing to play ball with Wal-Mart to win a share of shelf space in the giant retailer’s stores.
There was a time, and not too long ago, the thinking was that consumers would pay more depending on the quality. That was true for a time. Witness the price consumers were willing and did pay for products marketed as organic/natural. The growth of that segment in the last few years exploded. Given today’s choices, consumers may well revisit that segment and make fewer purchases â€” all because of cost.
Of course this does not necessarily have to become a trend in the making. There must be some way for the food industry to cut operating costs without passing more of the burden on to consumers.
The NYT article offered these tips concerning survivor technologies: invest to retool traditional technology, adopt a new business model and nurture a support network of loyal customers, industry partners and skilled workers.
Divergent theories abound now as in the past but one thing seems to remain constant. People are very price-sensitive. And with the other economic realities we face, price sensitivity is likely to increase. When other philosophies fail, try getting your prices down to a very competitive level, and then work to control your costs so you can make a profit. Stay in the game.