Propelled by strong sales of private label goods and in its international divisions, Wal-Mart has posted record sales and earnings. Net income for the quarter rose to US$2.3bn, a 15.5% year-on-year increase, in spite of sluggish US demand. Through its practices, Wal-Mart has defined innovation as the elixir for future growth.
In an already lacklustre economy, sales growth for most companies continues to decelerate as the US economy worries about a possible war on Iraq and future job cuts. Consumer sentiment has dropped to a near decade low, keeping spending in check. In spite of these hurdles, Wal-Mart has managed to forge ahead.
Strong sales growth at international operations has contributed to Wal-Mart’s performance. International units outstripped profit forecasts, due to strong sales in Canada, Mexico and the UK. International sales grew to $12.2bn, up 12.7% from last year, while operating profit at overseas operations was up 37.6%.
Key to the success has been cost reduction, achieved by the development of a global sourcing network and increased penetration of private label lines. Wal-Mart has been pushing food and non-food private label lines in Europe where 45% of products sold are private label.
In the US too, Wal-Mart has made considerable inroads into private label retailing, in particular as part of its push into food retailing. Mass merchandisers are becoming big players in private label. In 2001, the sharpest rise in private label market share was at mass merchandisers where store brand sales rose to 14.3% of products sold.
Wal-Mart has aggressively entered this arena with the rollout of its Neighborhood Market retail format, which saw a 3.3% same store increase for the quarter. The Neighborhood Markets are making dry grocery and private label grocery products the fastest growing areas for Wal-Mart.
Wal-Mart’s success spells out the ‘dos’ and ‘don’ts’ for the retailing industry. Aggressive and efficient, Wal-Mart owns the price base. Innovation has now become Wal-Mart’s silver bullet, whether through cost cutting mechanisms, entering new markets or offering its customers alternative products. Unable to fight for market share on a price basis, other retail formats have to keep up with Wal-Mart as it drives change along the entire value chain.
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