Posted on 01/17/2010 10:58:08 AM PST by Captain Peter Blood
The other night I was reading Nathan’s Economic Edge Blog, http://economicedge.blogspot.com/, and he had a link posted to an interview done by Eric King of King World News with Gerald Celente of The Trends Research Institute, http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/1/9_Gerald_Celente.html, where he gave his take on 2010.
Mr. Celente has a pretty good track record in discerning future trends in business, politics, social and world events. He has been at this for 30 years. You can examine his website at; http://www.trendsresearch.com/index.htm.
One of the things that caught my attention in this interview was his prediction for big box retailing, i.e. Wal-Mart, Target, Home Depot, etc.. His thesis was that we have seen the apex of big box retailing as we know it and it is now on it’s way down and with it a change will come to a new or I might say previous form of retailing to the public.
I will use Wal-Mart as the main example since I happen to work for them and see quite a bit of validity to what Mr. Celente was talking about.
All big box retailers, especially Wal-Mart, for the last 35 plus years have had a same formula for success and growth, a constant round of new store openings.
Even in past troubled economic times Wal-Mart has never Faltered, they have even prospered greatly in previous recessions. Until now Wal-Mart has never closed a store or laid off workers at the retail level.
One of the main problems Wal-Mart has had in recent years is where else to grow. They saturated most every market in the country along with all the other big box retailers. Their solution has been to build more stores in clusters around existing stores.
Example, you have two Wal-Mart Supercenters in a two to five mile radius, depending on population density, that are doing well. The company decides to build another Supercenter in the area knowing that it will cannibalize customers from the other stores, but based on sales figures it says that together all three will have a combined increase. Even though sales at the other two Wal-Marts will suffer to some degree.
Now you take an area like Southern California where this practice has gone to outer extremes. In a two the three square mile radius you have three Wal-Mart Supercenters, a Sam’s Club, and all the other big box retailers in a cluster. With rising wages and a expanding economy somehow all these stores can be supported to a certain level.
But in times like these, with a severe economic crisis with no end in sight and the California unemployment rate at 12.5% plus then that economic model can’t continue to work and won’t.
Wal-Mart and other big box retailers have hit the wall on growth, that is opening new stores. Stores open at least one year or more have had flat or declining sales and will continue to do so. The past Christmas shopping season was a disaster even for Wal-Mart, the fourth quarter numbers will tell the tale and I look for flat profit or maybe after we really dissect the numbers a loss.
Witness last week Wal-Mart announced that it was closing, primarily in California and Western States, 10 Sam’s Clubs. The Wal-Mart explanation is that they were barely profitable or losing money. The real explanation is that this economic crisis has made it nigh impossible to support all the big box retailers in these so called cluster areas.
In my opinion in the next few months the unheard of and unspeakable will happen, Wal-Mart in high population density suburban areas will start closing stores. I look for this to happen in states like California, Florida, Michigan, places where there is very high unemployment.
If we get another market crash and/or banking crisis, which I fully expect to happen in the next 12 months or so then Wal-Mart and all of the other big box retailers will be retrenching even more.
Mr. Celente’s theory is that big box retailing will be out and small box retailing in. Sort of the reverse Wal-Mart effect, the local Mom and Pop will make a comeback as people will want better service and will be willing to pay more for a quality product.
In a way I see this as a positive for the new long term rejuvenation of this country. By reversing that trend it could possibly promote resurgence in a domestic manufacturing base that we need to have along with a more balanced economy and then we can wean ourselves off the cheap Chinese goods we have been consuming like a ravenous beast for the last 15 to 20 years.
Our economy for the last 20 years had evolved into a consumer driven one where the consumer was 70% of GDP. That was never a sustainable long term viable economic model. We have to get back where we once were, that of a balanced economy to have any hope of once again being the prosperous Capitalistic country we were 50 years ago.
Joseph Schumpeter the Austrian Economist once said, “Capitalism by its very nature is a wave of destruction”. I took that to mean it is ever changing and evolving and with this country’s great resource of Entrepreneurs we can turn things around. At least that is my hope.
Truly silly article. The basic claim is that in the future Walmart will be unable to expand as fast as it has in the past. This is obviously true.
He then expands on this to claim this means they will immediately begin closing stores and losing money.
Unless I’m confused, building and opening new stores is expensive. If the pace of store openings slows and sales per store remain at the same level, net profits should go up, not down.
At some point increase in gross sales will slow, which is so obvious it shouldn’t be necessary to even point it out. No compound growth can go on forever.
This will affect the stock price, as investors are usually looking for future growth potential. But it shouldn’t actually affect ROI or net profits much.
BTW, it was widely forecast WM would lose market share after Sam died. Instead it entered the period of its greatest growth.
Walmart is no different than any other company. If a store is not making its numbers, if its too small, if its uneconomical then the company closes it and fires the staff. It's a business, not a charity.
You are flat out wrong here. I don't agree with this guy's premise that we'll go back to mom and pop stores, but saturation is real.
People said the same thing about Starbucks and in some areas they had 3 on the same corner! But we all know how that panned out. Saturation and poor economy caused them to start closing stores.
I can personally tell you that they do cannibalize sells when opening so many, cause my wife now shops at one further away cause it is nicer (her words). If it wasn't there, she would still be shopping at the old store.
Also they closed the one closest to us a few years ago, Of course, even the blacks I work with, called it Ghetto-Mart. This economy is most like going to get worse, and more stores from all chains will close, as they pull back from unprofitable areas.
Even if the economy gets better, Wal-Mart will still find it harder and harder to keep pace as they are already about everywhere. Remember A & P, they had more stores than Wal-Mart does now, and were the top dog. Now they are gone. I don't expect Wal-Mart to fold any time soon, but they are not guaranteed success forever.
Really, and who would they be?
Sears for one. Montgomery ward for another. Big box is just another name for discount department chains with ugly buildings.
Sears has managed to hang around but they are hardly the example for success. They are a better example of how being unwilling to give up.
Montgomery Ward no longer exists.
The question is not whether WM is going to have to adapt to changes in the market. The question is whether other retailers are going to be able to do a better job of adapting. Market share is a comparative scale, not an absolute one.
The author’s contention that small, high-price stores are goiong to make a comeback in a recession because people will be willing to pay more for quality and service is among the silliest things I’ve ever read.
Any such change would ocur during a boom or bubble, when people start thinking of themselves as prosperous and deserving better. Not during a recession when they’re either broke or worried they’re headed that way.
You forgot Gimbels, of course, they are gone now. And I think Macys is on life support.
If only our Congress critters were half as well attuned to the needs of their constituents.
If you’ve ever been a supplier of Wal*Mart, then you will KNOW the demise is coming. All they want is “less price, less price” ... the suppliers get a close to the profit margin as they can, giving up profits to stay a supplier. The “candy” (cocaine) of this is that Wal*Mart is huge, so your sales go through the roof. But your margins fall to nothing .. and when they are at “nothing” then you are asked to reduce your price again “or else.” At this point, you cannot reduce your price more, or you are selling at a loss, or you “give up” Wal*Mart as a customer ... which you cannot do because of all the people you’ve hired, etc. Its a no-win situation. Look at how many companies have gone bankrupt dealing with Wal*Mart (Winchester). In the end you cannot just keep decreasing your price because when profit becomes zero, you are out of business. I’d love to see a list of Wal*Mart “suppliers” who are in Chapter 7 right now. US suppliers couldn’t handle this so the “Made in America” (Sam Walton) motto switched to “Made in China”. And now China’s suppliers are seeing the same problem. “Cutting price” all the time, even though it is couched in “better efficiency, etc” is an eventual loser. When there is no more price to cut, you are no different than your competitors ... and not able to be the “low priced” leader any more, you lose your marketing position. (Flame me if you want, but I’ve BEEN there, you haven’t!).
Yep - JC Penney is another. Still hanging in there.
Why do you persist with these lies? First, Wal-mart started in the South (Arkansas) and continues to dominate in the small towns it is in. I know, I am from here.
Second, Publix is not dirty. Don’t have them here in Memphis, but in Florida, when I visit is where we shop for groceries. They are very nice. Wish we had some in Memphis. Competition is wonderful.
Your right on that. It still amazes me that people think a business is there to give them what they want....I remember when steel was big business in the US. Unions priced themselves out of a job..When you can buy steel oversea's and ship it to the US and truck it to where your business is and its cheaper than buy American steel, something is wrong with the way people think.. Unions were needed at one time (decades ago) but they started out with safety in mind and then it became money and benefits....
Big unions are as bad a big government...Screw the employer (or the citizen) its all about them..
My husband was on both sides of that coin, Union Steward CWA and then management...Some of the things that a few of the union members put in a grievence for were stupid...
I’m certainly willing to pay more for something that last longer.
For example I’ll pay $100 for boots that last a year vs paying $28 for boots that last a month.
I’ll pay $500 for a BBQ that lasts 5 years vs paying $300 for one that lasts a year.
In the end it will save me money.
“How about a chain of Wally Jrs, small convenience type Wallys that would cater to seniors and other folks looking for a smaller store to get in, grab, and go.”
I like your idea. Maybe it’s just me, but I think Wal-Mart is to shopping what consolidation was to schools. I always DREAD going to our Wal-Marts. There may be 15 checkout stations, but only two or three operating. It’s hard to do anything QUICKLY there, with the long lines, waiting, disinterested employees, hard-to-find parking, and inability to get in and out.
As just posted - JC Penney is another “big box” retailer that is still in business.
Sears is too.
They are ALL hurting thanks to the stupid Marxists running our economy.
Is that a good thing???? You be the judge.
I hope you know how to sew if they all go under.
Also all I said was that people might be willing to spend a few dollars more for a quality product rather than a piece of crap from China which won't last nearly as long.
All in all an interesting day and I thank all of you for the feedback.
I don’t see Borders surviving very much longer. The prices are simply too high.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.