Wal-Mart looks to specialty products
By Lorrie Grant
USA Today
Wal-Mart became the world's largest retailer by selling a broad selection of general merchandise at low prices. Now it is becoming the No. 1 retailer in an increasing number of specialty product categories — some seemingly unlikely for a discount chain.
Bloomberg News Service
"Wal-Mart will seek to test the outer boundaries of what consumers are willing to allow Wal-Mart to be," says Ira Kalish, chief economist for market research firm Retail Forward.
Shoppers stand in lines at the Wal-Mart Supercenter on Mallory Lane in Cool Springs, Tenn. The all-in-one retailer's grocery offerings have cut into the market share of traditional grocery stores.
Where Wal-Mart has already tested the boundaries and emerged No. 1:
• Jewelry. Jewelry and watch sales topped $2.3 billion last year, pulling ahead of former industry leader Zale, which posted $2.1 billion, according to "National Jeweler" magazine. In May, Wal-Mart added brand-name Keepsake diamond jewelry, which expanded its offerings in quality and price, with bridal sets, necklaces and rings from $199 to $899.
• Groceries. Wal-Mart's grocery sales last year were $65 billion, topping supermarket leader Kroger's $50 billion, according to Supermarket News. Grocery sales have climbed as it has converted stores into so-called Supercenters — a complete supermarket and general merchandise store under one roof — that account for 1,179 of the company's 2,782 U.S. retail stores. The company also sells groceries at its 517 Sam's Club warehouse stores and has started a chain of free-standing Neighborhood Market supermarkets, now at 36 stores. Together, they hold 10 percent of the $682.3 billion U.S. grocery market.
• Toys. An everyday selection of toy basics at low prices and full shelves of the hot toys, especially at the holidays, have made Wal-Mart the leader in the $34 billion toy industry. It had 19 percent of sales in 2000 (the latest full year available), passing Toys R Us, which held onto 17 percent, according to researcher NPDFunworld.
This does not mean that Wal-Mart is forsaking the general merchandise discount strategy that made it a $217 billion business — selling everything from tissues to trolling motors. It needs that breadth because "the entire population shops at Wal-Mart," says Celia Clancy, general merchandising manager for women's and children's apparel.
But growth is coming, in part, because of deeper selection in some categories. Where Wal-Mart could hit No. 1 next:
• Fashion apparel. Wal-Mart has started selling George, a more upscale proprietary brand with goods to rival the likes of Gap, American Eagle Outfitters, Ross and other specialty chains. Choices range from suits and dresses to trendier low-rise jeans and skirts. The line is designed to suit Wal-Mart's core apparel buyer but also draw in a higher-income customer who might be in the store for groceries or other goods. "Time and convenience outweigh everything," Clancy adds.
George was first rolled out at Wal-Mart in Europe. It has succeeded in the 256 Wal-Marts in Britain against brands including Gap and Marks & Spencer and at the 95 German stores. It has been tested this year in the United States, and this fall the women's items will be in all Wal-Marts, while George menswear will be in 2,000 stores.
• Drugs. By the end of 2001, Wal-Mart operated 2,977 pharmacies — making it the third-largest drug chain behind Walgreen and CVS — and had half of all discount-pharmacy prescription sales, according to PharmTrends tracking provided by Ipsos-NPD.
Though it is huge, there is more than sheer size behind Wal-Mart's takeover of some specialty categories. It's about more than price, too, especially as it adds some pricier offerings to its mix.
Its emergence as a top seller also reflects how millions of Americans have changed shopping preferences toward both value, which means they're more likely to try a discounter, and convenience, doing a lot in one stop.
"It's about a consumer who is not only looking for the best deal but ... a unique selection of merchandise," explains consultant Wendy Liebmann, president of WSL Strategic Retail.
To different shoppers, that could mean a lot of different categories, a Wal-Mart tradition. Or it could mean depth within a category, which the retailer is trying to provide in apparel, for example, by adding exclusive fashion lines such as George and Mary-Kate and Ashley Olsen clothes for girls.
Both Wal-Mart's aggressive expansion and shoppers' fading loyalty have frustrated other retailers.
Some are fighting back with more customer services and conveniences. Many supermarket chains are trying to make a strength out of quicker checkout, using methods ranging from lanes that let consumers scan their own goods to payment machines that use the touch of a fingerprint.
Wal-Mart may have the financial and technological clout to outmaneuver such moves. But some experts warn that if it gets too involved in trying to dominate too many fringe categories, it could lose the intense focus on general merchandise and price that made it Wal-Mart.
"At some point, it becomes difficult to manage and maintain control over so many categories," Kalish says.
