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Wal-Mart Effect Over? First Market Share Loss in Decade

The Wal-Mart phenomenon, driven by Sam Walton’s scorched-earth philosophy of low costs at any cost, may have just ended.

Last year, Wal-Mart Stores lost U.S. market share to its competitors for the first time in a decade, according to calculations by Credit Suisse. The world’s largest retailer had grown its share of the U.S. consumer market annually during the previous 10 years, from 9.3 percent in 2000 to 13.9 percent in 2009. But last year, that market share fell to 13.4 percent according to Credit Suisse.

Walmart Truck
Source: Walmart
Walmart Truck

The share loss underscores “the issues facing the $400-plus billion retailer,” said Michael Exstein, a Credit Suisse analyst, in a note Thursday to clients.

“We believe the ongoing issues of elevated energy prices, competitors (i.e. e-commerce) challenging its price leadership, and rising sourcing costs will continue to represent significant challenges to Wal-Mart’s longer term prospects.”

The greatest retail growth story of this age, with its expansion from a single discount store opened 50 years ago in Rogers, Arkansas to nearly 9,000 stores today, may have finally hit a wall, ironically because of the very same cutthroat methods it pioneered.

Research from Customer Growth Partnersshows that Target has actually been able to get its prices to 0.7 percent less than Wal-Mart’s prices for a similar group of 35 items. Using Target’s club card increases the gap in savings over Wal-Mart, whose prices were once thought to be unbeatable because of its aggressive negotiations with suppliers, sourcing relationship with China and efficiency of its domestic distribution centers.

Shares of Wal-Mart were among the few Dow Jones Industrial Average members to decline Thursday. The stock is down 4 percent this year even after last month's announcement of a new strategy to restart growth by making the stores more convenient.

For the last decade, Wal-Mart was able to reinvigorate its market share gains by expanding its grocery offerings rapidly through its Supercenters, eventually becoming the U.S.' biggest food retailer as well. But now, with competitors copying their productivity methods, the only way to grow market share may be to build more innovative stores in areas where it used to avoid. There’s only one frontier left for it to conquer: cities.

“The urban store penetration for dollar stores (these guys are just canvassing the country) is just really hurting Wal-Mart,” said Brian Sozzi, a retail analyst with research firm Wall Street Strategies.

Wal-Mart is experimenting with smaller “Neighborhood Markets” and “Marketside” stores to try and get into communities it either avoided by choice, or because it faced resistance by community groups that perceived its business practices to be unfair to workers and other neighborhood stores.

“Target and the dollar stores are swooping in with better merchandise, better shopping experiences and greater convenience,” said Patty Edwards, a money manager with retail expertise for Trutina Financial. “Wal-Mart has no idea what they stand for right now, and that’s the kiss of death in retail, even more so in challenging economies.”

Credit Suisse got to its 2010 market share figure by using “Wal-Mart U.S. sales including Sam’s Club divided by total census U.S. retail sales minus sales of merchandise categories Wal-Mart does not have a strong presence in,” according to the report. Wal-Mart did not yet return an email sent to its press center for comment on this report.

The failure of Wal-Mart, which replaced long-time CEO Lee Scott with Mike Duke in 2009, is a little bit of schadenfreude for a group that’s long been critical of the company’s policies, Walmartwatch.org. The website sees only one way left for Wal-Mart to expand from here.

“Urban Americans vehemently reject Wal-Mart's poverty-level jobs and disrespect for Associates,” said Will O’Neill of Walmart [sic] Watch. “The company isn't going to be successful in these communities until it improves the way it treat its employees.”

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