"We're going to do our thing and Wal-Mart can do theirs," said Mr. Fichtler of the market he has worked in for more than 20 years in a poor, primarily Hispanic neighborhood. Budget Food's clientele seems to prefer his market's fresh cactus, daily baked tortilla and other Mexican specialties to Wal-Mart's limited selection of lower-priced ethnic package and frozen products. The store also ups the service ante, cashing checks and offering Western Union money orders. "That's what's going to keep us alive," he said. "You don't have that in Wal-Mart."
Mr. Fichtler's battle is a microcosm of the challenges faced by retailers of all sizes as they square off against Wal-Mart. His strategy-differentiation-is the classic defense retail experts have suggested for the fray. As Ira Kalish, global director, Deloitte Research, put it: "The best way to compete with Wal-Mart is not to compete with Wal-Mart."
Other retail executives and experts think the chink in Wal-Mart's armor is service. "They can buy ketchup and distribute it better than anybody," said one senior industry executive who competes with Wal-Mart. "The `people' element is their Achilles' heel." In addition to a pending class-action lawsuit by female former employees, Wal-Mart, with its low-wage work force of 1 million, will need to add, and keep motivated, the employee equivalent of a new J.C. Penney's every year, the executive said.
The way to go up against Wal-Mart is to "provide unique consumer value that fights their [minimal] service model," the executive added. For example, in the food arena, offerings might include prepared meals and specialty counters such as delicatessens, pre-cooked meals and fresh fish.
targeting moms, kids
Canadian grocery chain Loblaws is differentiating by turning some stores into mini-lifestyle malls catering to mothers with young children. Offerings include prepared foods, a select line of children's clothing, dry- cleaning services, a cafe, on-site babysitting and a health club.
While many supermarkets and grocery stores are trying to fight Wal-Mart on price, some, such as Trader Joe's, have held their own by differentiating their offerings with private-label products. "We are who we are, whether Wal-Mart is in our territory or not," said Pat St. John, VP-marketing, Trader Joe's. "We're not knocking heads with them." She added that many of Trader Joe's customers pick up diapers and Tide at Wal-Mart, Costco or Ralphs.
Differentiation in and of itself may not be retail's silver bullet, however. Target Corp.'s Target's cheap-chic positioning, long held up as the paradigm of how to compete successfully against Wal-Mart, is starting to show signs of wear. Paula Ausick, senior VP-director of brand equities at Interpublic Group of Cos.' Foote, Cone & Belding Worldwide, Chicago, conducted a major study on how Wal-Mart is changing business, collecting data in Mr. Fichtler's Oklahoma City market, where Wal-Mart has been testing its retail concepts for almost four years. "Target pales against Wal-Mart in Oklahoma City," she said. "People are not seeing the brands they usually buy and the stores looked empty."
Some specialty retailers have adopted an "if you can't beat 'em, join 'em" tack and seek locations near Wal-Marts in the hope that consumers unsatisfied with the depth and breath of specialized merchandise at Wal-Mart will come across the street to make their purchases.
Another angle worked by some of Wal-Mart's rivals is convenience. As it becomes a super center with vast numbers of product categories under one roof, "the question is, will Wal-Mart get so big that it's inconvenient?" said the marketing executive. Kohl's, for one, believes it has a solid customer fan base because its strip-mall locations make it easy to get in, shop and get out.
Some experts even believe Wal-Mart can be challenged on what's thought to be its most impregnable marketing fortress: everyday low prices. A number of chains, and even some small shopkeepers such as Mr. Fichtler, found some of their prices beat Wal-Mart's. "The strength of Wal-Mart is the perception of low price," said one ad executive working for a Wal-Mart competitor. He believes retailers should be attacking the chain on the claim. "Perceptions," he said, "can be dealt with."
Battling perceptions may not be enough, however, given that even Wal-Mart's critics shop there. Former longtime Wal-Mart Exec VP-Marketing Paul Higham remembers driving in Bentonville, Ark., and seeing a car in front of him with a cartoon of little boy urinating on a Wal-Mart logo. The car turned into a Wal-Mart lot and its driver went in to shop.
The FCB study underscores the point. It divided Wal-Mart customers into four segments: champions, 29%, conflicted, 27%, enthusiasts, 15%, and rejecters, 29%. The "conflicted" group, those with political and social concerns about Wal-Mart, turned out to be the second-most regular visitors to Wal-Mart of the four groups.
The study also found a generation of shoppers, many with young families, that grew up shopping at super centers for household package goods. Those sticking with traditional shopping venues such as grocery stores and supermarkets tend to be aging baby boomers, the study found.
Retail mavens know there are a number of strategies out there that sound good in theory, but many also feel the hour is late and their effective options too few. Christopher Hoyt, president of Scottsdale, Arizona-based Hoyt & Co., said, "The only thing that could stop Wal-Mart is if the government gets involved, just as it did with Microsoft."