Can Wal-Mart beat dollar stores on their own turf?
The world's largest retailer crushes most competitors except for dollar stores. Is this about to change?
What would happen to the dollar-store business if consumers were convinced they could get lower prices shopping at conveniently located Wal-Mart (WMT) stores? The answer to that question may be coming now that a 22-month study by Bloomberg Industries points to Wal-Mart offering better prices almost all the time.
According to the research, Wal-Mart had lower prices than Dollar General (DG) 100% of the time in household goods. It also beat its dollar-store competitor 85% of the time when it came to auto supplies, grocery, health and beauty care and pharmacy.
Assuming these facts hold up to scrutiny, it prompts the question "Why have dollar stores been eating Wal-Mart's lunch?"
According to Poonam Goyal, a senior analyst at Bloomberg Industries, the answer lies in dollar stores' positioning in residential areas. That advantage will disappear, she told Bloomberg News, as Wal-Mart opens its own small format of neighborhood stores.
Dollar stores have long been on Wal-Mart's radar. David Glass pointed to the channel as the biggest challenge facing the chain when he was CEO of Wal-Mart in the '90s. Back in 2011, The New York Post reported the retailer had approached suppliers in search of lower opening prices expressly to compete with dollar store pricing head-on.
Posting in a recent RetailWire online discussion, Paula Rosenblum, managing partner, RSR Research, found weakness in the assumption that Wal-Mart could scale down to run a small format competitive to dollar stores. "It seems to me that we ascribe abilities to Wal-Mart that the company just doesn't have," she wrote. "From the logistics, to the curated assortments, to replenishment, to staffing, it's just a different business."
Although Wal-Mart's Neighborhood Market may represent the fastest-growing segment of its current business, the format had been long in development and has struggled along the way. Richard J. George, Ph.D., professor of food marketing at Haub School of Business of Saint Joseph's University, has observed how dollar stores have stood up against Wal-Mart so far. "It has been argued that dollar stores are the only food retail format that can survive the scorched earth syndrome created when Wal-Mart crushes non-competitive retailers," he wrote on RetailWire. "Wal-Mart once referred to these formats as 'ankle biters.' The introduction of refrigerated, frozen and fresh foods certainly has transformed these players into bonafide competitors, not only to Wal-Mart but to every other food retailer."
And yet, as Wal-Mart increases its neighborhood-by-neighborhood presence, continually reminding shoppers of their lower prices, will dollar stores lose their edge? Consumer marketing strategist Liz Crawford believes these chains need to find a point of differentiation beyond price.
"Stocking a locally desirable assortment, configuring merchandising for optimum shoppability and offering a rewards program may help. But only maybe," she wrote on RetailWire.
More on Forbes
Wal-Mart will never be able to compete with DG in the "convenience" business.
One reason is the lines at the Wal-Mart!!!! I abhore having to go to a Wal-Mart of any kind!!! And if I wanted a job as a cashier I would apply for one, I DO NOT want to check myself out!!!!! Our store is hideous!!!!! And they NEVER keep the shelves stocked!!
I was recently in a Walmart and I only go there for a few items, under $20.00 once every two months. I took a look around and was shocked at the high prices of stuff (not their brand) that has risen since the last time I bought them. I might as well go to Kmart, Target or Dollar General. Greed always comes crashing down no matter what.
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