Between 1977, the year Sam Walton introduced the 'Wal-Mart Cheer', to his death in 1992, Wal-Mart's compound annual growth in both revenue and net proÞt was 35%.

Impressive performance, but I am more impressed by their performance since 1992: compound annual revenue and net proÞt growth rates of 9% and 8%, despite much higher base levels - $55 billion in sales (the current size of the nation's #2 retailer, Home Depot) and $2 billion in net income.

In 2002, Wal-Mart's revenues represented an incredible 2.3% of U.S. GNP. But it's not the Þrst time that a retailer has been a dominant force in the economy: In 1881, Marshall Field's represented 2% of the economy; in 1932, A&P had sales accounting for 1.5% and 15,000 stores, the most for any retailer then and now; and in 1983, revenue at Sears amounted to 1% of the U.S. GNP.

Today these retail titans no longer look down upon the rest: Marshal Field's revenues equal 6% of Target's sales; Atlantic & Pacific is still in business, but the unprofitable, regional player has dropped its A&P banner; and Sears has been acquired by K-Mart, who recently emerged from bankruptcy. Since 1980, at least 25 other major chain stores, including F.W. Woolworth, have closed their doors. Why does this happen? What are the factors that cause a leading retailer to take a tumble? By looking back through retail history, I have identified four of the forces that play a role:

Dramatic changes in customer buying behavior and tastes
Organized resistance from government and unions
Emergence of competitors that either beat you at your game or take the game elsewhere
Failure of internal control processes due to aggressive growth goals

What history tells us

Shopping habits continually change, and though retailers can detect changes in shopping behavior in their daily contact with the public, their installed base of real estate makes it difficult to rapidly respond to people where they work, eat and sleep: Marshall Field's was marginalized by the decline of the carriage trade and the rise of the automobile, and F.W. Woolworth couldn't recapture the traffic lost to the disappearance of the lunch counter.

There were two forces leading to the end of A&P: upper management became incredibly distracted by government regulation of chain store growth in the 1930's. Partly because of this, management did not respond to the emergence of King Kullen, a competitor that introduced a self-service model and took the grocery game to a new playing field. A&P regrouped in the '40s and '50s, but the weight of bad union deals in the northeast handcuffed them to a 50+ year run of mediocrity.

Aggressive pursuit of growth, when it distracts from the core business, has been the downfall of more than one large retailer. This happened to Sears when Allstate provided little insurance to their retailing woes, and more recently with K-Mart's flings with Sports Authority, Borders, and Builders Square. Aggressive growth goals can also produce process control problems, as it did with the Gap, whose rapid expansion in the 1990's saddled them with marginal real estate and a wavering brand.

"History suggests that Wal-Mart will eventually meet the fate of the ultimate 'roll-back'..."

The million dollar question

Is Wal-Mart different enough from these former retail giants to withstand 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% growth? History suggests that Wal-Mart will eventually meet the fate of the ultimate 'roll-back', but I would not bet on this in the short run.

Right now it is a bit rocky for Wal-Mart on the PR front, both in terms of penalties for employing illegal workers, potential fraud by a former vice chairman, and a constant barrage of litigation.

However, unlike other major retailers, Wal-Mart has an obsessive focus on operational efficiency and cost reduction, and single-minded commitment to providing customers low prices. They execute a single business strategy and execute it successfully in multiple formats to increase their reach.

This operational focus puts them in a better position to avoid the wheel of retailing, where a more nimble competitor comes in and figures how to do everything that the incumbent does at a lower cost. So, 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 lbs global retailer gorilla, their home is Bentonville, Ark.

Stephen J. Hoch
Principal Consultant
Retail Brand Strategy, Proteus Design

Chairperson, Marketing Department, Wharton School, University of Pennsylvania