Can Wal-Mart beat history?

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Between 1977, the year Sam Walton introduced the "Wal-Mart cheer," and Mr. Walton's death in 1992, Wal-Mart Stores' compound annual growth in both revenue and net profit was 35%. It's an impressive performance, but I find Wal-Mart's performance between 1992 and the present more impressive. It produced compound annual growth rates in revenue and net profit of 9% and 8% in that period-despite starting from much higher base levels of $55 billion in sales (the current size of the nation's No. 2 retailer, Home Depot) and $2 billion in net income. It's clear Wal-Mart is still rolling along quite well.

In 2002, Wal-Mart's revenue represented an incredible 2.3% of the U.S. gross domestic product. However, it's not the first time in history that a retailer has been a dominant force in the economy.

In 1881, Marshall Field's represented 2% of the economy; now it's just 6% of Target Corp.'s sales.

In 1932, A&P had sales accounting for 1.5% of the national economy. Its 15,000 stores were the most for any retailer-then or now. Today, the once Great Atlantic & Pacific is still is in business, but it's a regional player .

Looking forward, to 1983, revenue at Sears, Roebuck & Co. amounted to 1% of the economy, but today Sears no longer peers down from its Chicago tower. With a market capitalization of $12.3 billion, Sears ranks at No. 11, behind Wal-Mart, Home Depot, Lowe's, Target, Walgreen's, eBay, Kohl's,, the Gap and Costco. Since 1980, at least 25 other major chain stores, including another great tower of retailing, F.W. Woolworth Co., have closed all their doors.

So what are the factors that cause a leading retailer to take a tumble?

Looking back at retail history, I have identified four forces that have played a role, and I am sure there are more. They are:

* Dramatic changes in customer buying behavior and tastes;

* Organized resistance from government and unions;

* Emergence of competitors that either beat it at its game or take the game elsewhere;

* Failure of internal control processes due to the ubiquitous growth imperative.

Over the last 100 years, high-flying retailers have watched their market dominance disappear as consumers migrated toward other modes of shopping. Marshall Field's was marginalized by the decline of the carriage trade and the rise of the automobile. F.W. Woolworth couldn't recapture traffic lost in the disappearance of the lunch-counter trade. Shopping habits continually change.

Though retailers can detect changes in shopping behavior in their daily contact with the public, retailers' installed base of real estate makes it difficult to rapidly respond to where people work, eat and sleep.

There were two precipitating forces that led to the beginning of the end at A&P. Upper management became incredibly distracted by impending efforts to regulate chain-store growth in the 1930s. Partly because of this, A&P did not respond to the emergence of King Kullen, a competitor that took the grocery game to a new playing field by introducing self-service grocery. As A&P regrouped in the `40s and `50s, the weight of bad union deals in the Northeast handcuffed it against the competition and settled it in for a 50-plus-year run of mediocrity.

The relentless pursuit of growth has been the downfall of more than one large retailer. Aggressive growth can often distract a retailer from focusing on the core business. This happened with Sears, as its Allstate insurance unit provided little insurance to its retailing woes. More recently, there were Kmart's flings with Sports Authority, Borders and Builders Square.

Aggressive growth goals can also produce process-control problems, as at Gap Inc., where rapid expansion in the 1990s saddled it with marginal real estate and a wavering Gap brand. For large retailers, maintaining aggressive growth goals demands attention to multiple growth initiatives, any one of which could turn cancerous and spin out of control.

the ultimate `roll-back'?

So the big question is whether Wal-Mart is different enough from these other former retail titans to weather changes in consumer behavior, government regulation and unionization, an out-of-the-box competitor, and the distractions and control problems accompanying the pursuit of continual 10%-per-year growth.

History suggests Wal-Mart will eventually meet the fate of the ultimate "roll-back." But I would not bet on this in the short run.

Wal-Mart has been both penalized and rewarded by government regulation and unionization. While certain regions of the country (New England) have thrown up roadblocks that effectively prevent chain-store entry and protect local retailers, Wal-Mart has benefited when entering heavily unionized metro areas.

Unlike other retail titans, Wal-Mart has gotten to where it is with an obsessive focus on operational efficiency and cost reduction, and single-minded commitment to providing customers low prices. It executes a single business strategy, and executes it successfully in multiple formats to increase reach.

Although the jury is out as to whether Wal-Mart can be broadly successful on the global front, my judgment is that if anyone can become the 800-pound global retailer gorilla, the home address is Bentonville, Ark.

Stephen J. Hoch is chairman, John J. Pomerantz professor of marketing, and director of the Jay Baker Retailing Initiative at the Wharton School, University of Pennsylvania, Philaelphia.

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