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Is Retailing’s Death Star Vulnerable After All?

by Bob Batchelor on Dec 2, 2003

You think that Americans’ national pastime is baseball, football, or Nascar? You’re wrong. It’s shopping.

The United States is a country filled with passionate shoppers. Nothing is more American than finding a bargain. If you want to see an economic juggernaut in action during the holiday shopping sprint from Thanksgiving to Christmas, head over to the local Wal-Mart. The company’s promise of “everyday low prices” is music to the ears of every shopper.

For better or worse, we’re living in a Wal-Mart World. The company now produces an astonishing 2.3 percent of the nation’s gross domestic product. Last year, Wal-Mart sold a record $1.43 billion the day after Thanksgiving. This year the number jumped to $1.52 billion.

Yet, even with millions of people entering the doors of the world’s largest company, things are not all rosy for its stores. Public outcry against the company is growing stronger.

This shopping season could be critical for Wal-Mart, given the criticisms leveled against it. The notion that Wal-Mart’s aggressive expansion has destroyed small-town America is nearly universal. Recently the store has faced censure for paying its employees substandard wages and for hiring illegal aliens. Public outrage could reach a point where shoppers turn away from Wal-Mart and give their business to retailers viewed as more employee — and consumer — friendly.

Wal-Mart is in danger of becoming corporate America’s Darth Vader, master of an all-but-impregnable Death Star to execute its strategies while ignoring the forces massing against it. Shoppers openly declare how much they hate Wal-Mart, but say they must shop there because it stretches their budgets. Notice how, in contrast, consumers rave about Target and Costco. This disparity in consumers’ attitudes could be Wal-Mart’s fatal defect.

Given its size and scope, Wal-Mart’s ultimate demise may seem inconceivable, but the death of a bargain retailer is not unprecedented. >From the original giant retail empire founded by Frank Woolworth in Utica, N.Y., in 1879 to regional powers such as New York’s E.J. Korvette and Pennsylvania’s Fisher’s Big Wheel, many discount retailers have been discarded into history’s dustbin.

While many discounters failed because they didn’t adopt technological innovation quickly enough or because they pursued ill-advised diversification projects, others disappeared as public perception shifted. Surely Woolworth executives didn’t imagine that Kmart would upend the company, just as Kmart never really viewed Wal-Mart as a threat in the 1960s and 1970s. Will there be a retailer that can out-Wal-Mart Wal-Mart? History suggests that the answer is yes.

Woolworth wasn’t the first merchandiser to offer cut-rate prices. Like many of the world’s greatest businessmen — think of Henry Ford’s assembly line or Bill Gates’s computer operating system — Woolworth didn’t invent what made him famous. He recognized the beauty of the discount concept and then built an empire.

Woolworth’s work to establish bargain shopping apart from traditional retailing was revolutionary. Retailers were just beginning to understand the psychology of shopping in the late 19th century. Using dramatic displays and offering a broad selection of goods, his stores transformed simple marketplaces into edens where shoppers fulfilled their dreams. Woolworth’s five-cent promise gave almost everyone buying power. By 1918, a billion people entered Woolworth’s stores each year, and more than 820 million left with a purchase.

Looking back at the history of discount shopping in the United States, it’s easy to visualize a line from Woolworth’s to Wal-Mart. Today’s discount retailers use the same methods Woolworth pioneered. They build stores in prime locations, squeeze distributors and offer low prices.

Wal-Mart has mastered its gargantuan supply chain and used its size to force vendors to cut their prices. Technological innovations have driven down overhead. Savings have then been passed on to shoppers. Wal-Mart’s high-tech infrastructure is the real engine driving the company’s revenues.

Public protest, however, has put Wal-Mart at a crossroads. On its present course, it can continue gobbling up the hundreds of billions of dollars shoppers spend there annually and keep expanding until a store sits on every corner. As it does so, the company will battle challengers and constantly look for threats to its throne. Traditionally, this is the way large corporations function.

But given the heavy criticism Wal-Mart faces, a better strategy would be for the company to use its power to become a corporate revolutionary, utilizing its influence to set new merchandising standards as the country continues its shift to a service economy. A simple first step would be to pay employees better, which would immediately improve the lives of 1.4 million people and their families. With such actions, Wal-Mart has the chance to change the way corporate America operates.

The economy goes as Wal-Mart goes. Will it do something visionary or risk eventual extinction as did Frank Woolworth’s great innovative retail enterprise? This may be the company’s only chance to offset its damaged reputation.

It’s not unreasonable for the world’s largest company to aspire to be its most compassionate. That might make Wal-Mart a place where people would want to work — and love to visit again.

Bob Batchelor is the author of "The 1900s" (2002) and a writer for the History News Service.