Facing supermarket forces

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Is Wal-Mart’s entry into the UK market a sign of global retailing? It’s an interesting move, when Wal-Mart itself is solidly small-town American.

For most people, the announcement that Wal-Mart was buying Asda was just another episode in the current merger wave, another confirmation that modern business crosses national boundaries. British retailers responded, however, as native Americans might have done if they had known what the arrival of Christopher Columbus held in store for them.

They appreciate, as few outside the retail sector do, the scale of Wal-Mart’s operations and achievement. It is already true that more people work for Wal-Mart than for any other company. And if you list other large employers around the world, you see that – with the pathological exception of Indian Railways – this is the only organisation which will offer more jobs in future, not less.

Wal-Mart is not just the biggest retailer in the world. Its sales are three times those of any other retailer. Long ago, it overtook Sears Roebuck, which had dominated the American scene for the best part of a century. More recently, it showed a clean pair of heels to K-Mart, its most direct competitor.

There are already many business school cases about the company. They feature Sam Walton’s homespun philosophy, his quintessential American values, his notorious meanness. Before Bill Gates, Walton was America’s richest man: allegedly, he drove himself around in a pick-up truck, and did not leave a tip after his $5 haircuts.

The key point in this account is rarely developed. We are told that modern business is inescapably global. But Wal-Mart -–on any conceivable criteria one of the half dozen most successful companies of our times – is not global at all. Almost all its employees work in the United States. Almost all its sales are in the United States. And not very comprehensively within the United States at that. In the parts of America visited by sophisticated European tourists, Wal-Mart stores are few and far between. It is only ten years since the company targeted the north-eastern states at all, and it continues to encounter customer and community resistance there.

Wal-Mart is firmly based in mid-town America. The world’s largest private sector employer is managed out of Bentonville, Arkansas. And when you enter a Wal-Mart store, you see immediately why they have been dubbed ‘living museums of modern America’. The product ranges they sell – from doughnuts to handguns – and the ways in which they are sold – ‘you must be satisfied, our policy guarantees it’ – are culturally specific. The Wal-Mart formula is American not only in its location but in its values.

In this, Wal-Mart epitomises the retailing business it dominates. Most retail formats remain assertively national. If Wal-Mart is as American as the apple pie it sells so cheaply, Marks and Spencer is as British as roast beef and Carrefour as Gallic as a baguette. But even before Wal-Mart’s move, many people in retailing believed all this was about to change. Cross-border alliances and acquisitions in retailing are all the rage. Why?

Much of the debate is based on trite generalisation about the inevitability of the global marketplace. Amidst it, there are three substantive claims. First, only huge transnational retailers can hope to negotiate effectively with similarly transnational manufacturers. Yet Sainsbury and Tesco are already sufficiently large that no company, not even Nestlé or Unilever, can manage without their business. And what really matters is not size but market share. The brigands who built castles on the Rhine understood that the important thing was not the calibre of your gun but control of the narrow gorge. The same is true of allnegotiation. Dunnes Stores – by far the largest food retailer in Ireland – has a stronger position than Promodes, with greater sales but less market power.

Second, retail formats are becoming more transferable internationally. There are some winners here, like IKEA and Gap, but they are niche players. No general retailer has yet made a real success of taking a domestic format overseas, and those who have come closest have placed their domestic format in an overseas niche – as when Marks and Spencer’s English sandwiches became the favoured lunch of chic Parisians. There is still no more forceful reminder that the homogenisation of tastes is still some way off than the contrast between a Wal-Mart supercenter and a Carrefour hypermarket.

And third, even if formats remain nationally distinctive, there are other competitive advantages in retailing which can be transferred abroad. There is something in this. Wal-Mart’’ information systems are the envy of the industry. But while this may have been decisive in their battle with Kmart -–who were attempting to do the same thing – the issues they face when they confront Sainsbury or John Lewis are very different. Wal-Mart’s American achievements have been based on rolling out a proven formula in towns not so different from those in which the formula has been proven. They know, and their competitors know, that they cannot reproduce this in Europe.

British retailers are right to fear the advent of Wal-Mart, because whatever the soundness of their strategy they have the resources to bring aggressive price competition to high streets and shopping malls and it is likely that they will. But they will not find it so easy to take over these streets and malls, just as British retailers themselves have found overseas expansion harder than they thought. Global retailing will have its day, but that day is still some way off.

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