For work I’m doing some research into Wal-Mart, and big-box, sell-everything-including-groceries retailing.
From my reading so far, Wal-Mart’s model works well in suburban areas, but does it allow the chain to penetrate more densely populated urban markets?
The Wal-Mart model requires:
- a large lot on which it can build a 150,000+ square foot store, plus provide ample parking for customers and staff.
- an inexpensive, flexible labour pool
- customers who can easily drive to the store
- customers with room to store enough products to justify a trip to Wal-Mart or customers willing to use Wal-Mart as a convenience store.
- customers who prioritize inexpensive over everything else.
- efficient supply chain operations — that might find urban traffic congestion costly.
In many cities it’s hard to find the real estate, although a labour pool is likely readily available.
Traffic congestion in urban areas may make a trip to Wal-Mart too agravating for many and therefore not worth the hassle, especially for customers who do not prioritize price over experience.
Many urban dwellers live in smaller homes than their suburban counterparts. Therefore, they shop more often for basic necessities and unless Wal-Mart is convenient, it may not be the first shopping choice.
However, many city dwellers pay more for their homes than those in suburbia, which could leave less disposible income. Therefore a bi-weekly trip to Wal-Mart may help stretch the family budget — but in this case they might drive to the suburb to shop.
In the end, will it be local real estate costs that determine whether Wal-Mart’s emerge in dense urban cities? Their core customers who live in cities will likely drive to the suburbs to shop; those who are not Wal-Mart customers, likely won’t shop there regardless of location.
Therefore, Wal-Mart’s own model perhaps precludes profitable urban locations. The real estate costs more, taxes may be higher, fewer potential customers, more traffic slowing customers and suppliers. And we are not even getting into the organized anti-Wal-Mart lobbies that exist in many cities.
So, why are they trying so hard in some cities and countries? Maybe there’s something I haven’t considered. Or, they have a new more urban, upscale model to unvail.