Views from the Road

Entry Number Two

When the blogger began his current six-month tour of North America, he had no idea that Walmart Supercenters would become his grocery store of choice. There are several reasons: First, there are more than 4,000 Walmarts in the US, Canada and Puerto Rico. The majority are supercenters with grocery departments. They are nearly ubiquitous, which makes shopping in them convenient. Second, they are masterpieces of merchandising, highly refined sales machines, which makes shopping in them time-efficient and easy. Third, the prices are as low or lower than any competitor. Fourth, they stock the items the blogger buys.

Sam Walton founded Walmart in 1962 and quickly expanded the operation into a chain of stores. Walton identified and appealed to a certain demographic, one that was prevalent in Arkansas, the chain’s home state. It turned out that demographic was prevalent—and underserved—throughout North America, facilitating Walmart’s meteoric rise to become the world’s largest public corporation by revenue, and the largest private employer and grocery retailer in the US.

Walmart executives could not have known in advance that their customer base would expand as the middle class shrank, driving people from pricier retailers to Walmart. In summer 2009, thinly populated parking lots at even Sears and JCPenney are common, while nearby Walmart lots are almost always packed. Walmart’s success can be partly attributed to their good fortune in a bad economy, but smart merchandising, ruthless efficiency and exploitation are the principal reasons.

Rapid expansion has worked for Walmart, but what about other mass retailers like Target, Lowe’s, Home Depot, Office Depot, OfficeMax and Staples? Of these, Target is easiest to understand. It’s for that large but shrinking segment of the population that’s not flush with cash but can’t bring itself to shop at Walmart.

Lowe’s and Home Depot seem to be locked into a death-wish expansion strategy. The two home-improvement chains must have decided that the US population will continue to increase and that the spread from urban to suburban to exurban will continue. That’s the only explanation for the stores’ appearance in what today seem to be remote outposts. And it’s very often not one or the other appearing in those places but both—frequently nearby, sometimes within sight, and even adjacent to each other. For example, Lowe’s and Home Depot stores are about 100 yards apart on the same side of the road in Moultrie, Georgia, a town of some 14,000 people in a county of some 46,000 about 200 miles south of Atlanta and 60 miles northeast of Tallahassee, Florida.

The blogger has been in both Lowe’s and Home Depot stores where the employees outnumbered the customers. Staff in these stores were very glad to see the blogger and fawned all over him. Some economists think that as oil becomes more scarce and more expensive, the US will see a contraction from the exurbs and suburbs because living far from the urban centers where the bulk of the jobs are won’t be affordable. If those economists are correct, there will be a lot of rental space available at what were once Lowe’s and Home Depot locations.

Of the examples given, Office Depot, OfficeMax and Staples are the most difficult to understand. These stores are like huge Scotch Boutiques, the highly specialized shop so acutely parodied on Saturday Night Live in the late ’70s. The stores cover a lot of square feet, which means the rents are high, but their product line is narrow, as are the profit margins on most of the goods. The blogger knows both chains also sell online, but it’s difficult to see how sales of office stuff can sustain one, let alone three chains. Have you ever been in an Office Depot, OfficeMax or Staples store that was full of customers, where there were lines of impatient people at the registers?

Between July 2008 and July 2009, US retail sales dropped 8.1 percent. From April 2008 to April 2009, Wal-Mart reported 13 straight months of same-store sales gains. For the second quarter of 2009, sales for Walmart’s US division rose only 0.3 percent, while international and Sam’s Club sales declined, indicating that even Walmart is not recession proof.

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