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"How Does a 900-Pound Gorilla Get to Be an 1,800-Pound Gorilla?"

Wal-Mart Thinks Outside the Big Box

Dear Wal-Mart: Was it something I said? You don't call, you don't write — and you give me the brush-off when I call you. Too bad, because more than a few of us are eager to hear your answer to one of the business world's most intriguing questions: How does the world's biggest retailer plan to get bigger — much bigger?

Entering your fifth decade, you have bulked up to become a world-dominating behemoth that Sam Walton himself would hardly recognize. With 1.3 million employees and more than $218 billion in sales, you are bigger than the next three largest retailers combined. And now word at the mall has it that you aim to double in size in the next five years, growing at the rate of one Sears Corp. per year. One of your spokesmen, Tom Williams, politely but emphatically told me that 100% growth over five years is not a goal. Or is it? In a recent speech at Portland State University, your vice president of international marketing, Julie Lyle, boasted that it won't be long — maybe five to seven years — before your revenue outside the United States is greater than your volume inside the United States. Assuming that you continue to match your current U.S. sales growth of about 15% per year, and that in five years, international sales hit the current U.S. level of $180 billion, you'll be a $542 billion Goliath.

Knowing your executives' penchant for sometimes overstating their stretch goals, I called a guy named Ira Kalish and asked him what you'd look like in, say, three years. Kalish is the chief economist for Retail Forward Inc., a consulting group that specializes in retail-intelligence gathering. He's spent more than a decade analyzing selling trends around the world, and he recently put together an amazingly detailed report called "The Age of Wal-Mart." He says that it's not unreasonable to expect that by 2006, you will likely rack up annual revenue somewhere between $300 billion and $400 billion, "an unimaginable number by any standard." You will dominate, by far, the largest chunk of the food business in the country. "For suppliers," adds Kalish, "Wal-Mart will be a country unto itself — a large one."

All of which gets back to my original question: How does a 900-pound gorilla get to be an 1,800-pound gorilla? Part of Kalish's answer to that question is pretty conventional. He expects you'll ramp up your Neighborhood Markets stores, which let consumers engage in fill-in shopping trips between less-frequent trips to your Supercenters. You will continue to saturate markets with various formats, as you have done in Oklahoma City, where you've spaced Supercenters just five miles apart — and dropped Neighborhood Markets two miles from each of the oversized stores. And you will experiment with placing big boxes in big cities: You've already chosen Dallas as the first site for a new urban Supercenter. New York's outer boroughs (Brooklyn or Queens) could be next.

But Kalish is also convinced that you've got a radical new strategy up your sleeve: You're going to get bigger by thinking outside the original big box. He says that you'll make a bid to expand at the very edge of your core business, by rolling out new categories such as financial services (banking and brokerage) and home-improvement merchandise. Fill it up at Wal-Mart! You're already well on your way to launching 1,000 gas stations at store parking lots. Predicts Kalish: "Ultimately, Wal-Mart will seek to test the outer boundaries of what consumers are willing to let Wal-Mart be."

Wal-Mart goes for the fringe — now there's a concept that I had to see for myself. So I booked a flight to Houston, arrived in a rainstorm of biblical proportions, and drove down the Sam Houston Parkway to Pasadena, a suburb on the city's southeastern edge. I quickly found myself in a maxed-out version of mall land, where a Murderer's Row of cavernous emporiums — Kohl's, Lowe's, Target, OfficeMax, Best Buy, the Home Depot, and, of course, Wal-Mart — dominated the blacktopped prairie. This Wal-Mart was pretty much your standard-issue box. Inside was the usual vast array of stuff, piled to the rafters: computerized telescopes, Schwinn bikes, Weathersby hunting rifles, yoga starter packs, tropical fish, 14-karat stud earrings, white toilet seats. But there, over on the east side of the parking lot, was an item that 99% of Wal-Mart customers have not yet put on their shopping lists: used cars. That's why I had come to Houston: This car-crazy megalopolis is a perfect laboratory for testing your used-car initiative.

Last summer, in partnership with the Asbury Automotive Group Inc., the country's largest privately owned car retailer until it went public in March 2002, you quietly set up four used-car dealerships in the Houston area and began marketing them under a brand called Price 1 Auto Stores. Because you're still experimenting with the concept, your Price 1 initiative remains in stealth mode. Asbury can't use your name in any of its promotional materials, and there have been no radio, TV, or newspaper ads to inform Houston residents that they can buy a used car at Wal-Mart. But the dealership's cinder-block facade, painted in Wal-Mart blue and gray with that ubiquitous red stripe, would be recognized by any denizen of your big boxes.

As soon as I stepped onto the lot, I was greeted by a twentysomething salesman. He explained that Price 1 is built around a nonconfrontational selling model: He doesn't get a commission, but he could nail a bonus if I purchase a vehicle and he scores high on a customer-service follow-up call. Price 1 sells relatively new used cars. All of the 100-odd cars on the lot are under 5 years old, with less than 75,000 miles. And I quickly found that while Price 1 believes in a soft sell, it makes a hard, competitive offer: one "no haggle" price, a 5-day money-back guarantee (no questions asked), a 3,300-mile warranty, and, most remarkable of all, 12 months of roadside assistance, a feature unheard of in the used-car biz.

There have been other retail giants that have attempted to crack this market — such as Circuit City's initiative with auto retailer CarMax — but none have really scored a big success. Still, it's pretty clear why you would take a hack at it: Used cars is a multibillion-dollar market, but there's still no single player that owns a substantial share. Your brand name has a reputation for low price and reliability in a market where price is uncertain and reliability is nonexistent. And you see an opportunity to apply your hyperefficient distribution system to one of the last vestiges of prehistoric, inefficient retailing in the country. Who knows? If you win big, you could make the used-car business a springboard for getting into the new-car business. Maybe in the not-so-distant future, you'd partner with, say, a Korean manufacturer to sell exclusive, private-label Wal-Mart cars at a very low price.

So is the six-month trial run of Price 1 proving to be a winner? The Price 1 salesman gushed that you plan on launching 600 dealerships nationwide starting this year — a sign that you are committed to making used cars a key part of your strategy. But in a conference call to Wall Street analysts, Asbury Automotive executives were a tad less sanguine. Citing heavy startup costs and a disappointing turnout from your customers, Asbury says that this will be a make-or-break year for Price 1 — although the risk-rewards trade-off remains "very compelling."

What's the real deal? I'm trying to clarify all of this with you, but we both know that you're not talking. Still, I remain your dedicated customer.

What's Selling in America

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Part 2: "How Does a 900-Pound Gorilla Get to Be an 1,800-Pound Gorilla?"
Wal-Mart Thinks Outside the Big Box
Part 3: "Our Customers Can Sniff Through Any Kind of Hard Sell. And When They Do, They're Gone."
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Part 4: "We Decided to Merchandise Raised Toilet Seats in the Same Way You'd Merchandise Lamp Fixtures at Pottery Barn."
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Part 5: "The Lamest Question in Retail Is, 'Can I Help You?'"
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A version of this article appeared in the January 2003 issue of Fast Company magazine.