Analysts debate Supercenter lifecycle

by The City Wire staff ([email protected]) 94 views 

Wal-Mart revolutionized the discount retail industry when it introduced its sprawling “Supercenter Model” to the world in 1988. In 2012, the retail titan had 3,153 of the mammoth stores scattered from coast to coast and border to border.

But like the Oldsmobile’s fate in recent years, some experts say the “Supercenter Model” could be nearing the end of its optimal lifecycle with the next generation who’s more apt to shop online and willing to pay a little more for convenience.

But despite some ill-fated forecasts for big box models, Wal-Mart plans to spend another $4.5 billion this year and next to add more superstores to its footprint.

This “Super-centric” fixation gives some analysts like Leon Nicholas, senior vice president with Kantar Retail, pause for concern. Nicholas said in a recent interview with The CIty Wire that retailers no longer have the luxury of pondering complacency amid a quickly evolving e-commerce world.

He, along with Darrell Rigby of Bain & Co., have noted that retailers go through revolutions every few decades – the most recent being the disruptive digital age that stands to impact every phase of the vast supplier chain now serving big box retailers like Wal-Mart.

Nicholas said just as digital is turning retail on its head, the supply chain will also be altered in the next few years, requiring innovation now to handle the possible shift away from the “Supercenter Model” that could happen in the next couple of decades.

“Technology has allowed the future to get here 40 years early,” Rigby said. “Traditional brick and mortar retailers are seeing their third revolution since the era of shopping malls and later discount stores. Digital retailing is coming, it’s inescapable and happening faster than you can imagine.”

In a Nov. 9 report, Bain & Co. said digital is the biggest disruption to hit the retail industry in the last 50 years. Online shopping, mobile devices and social networks are revolutionizing how consumers shop and what they expect, and how retailers operate.

In the same vein, the supply chain and logistic operations that stock and service the big box models will have to be revamped to fit a more nimble format. There is no time to lose, analysts say.

There are 32 million more smartphones in the hands of U.S. shoppers this holiday season than a year ago and 34 million more tablets. With consumers researching products, reading reviews and comparing prices online, digital will influence more than 50% of all holiday retail sales, or about $400 billion, according to the Bain report.

Nicholas said Wal-Mart officers can’t afford to sit back and wait the 12 years or so it did before finally announcing the Neighborhood Market model was profitable enough to expand, as it has done in the past two years.

“Imagine if Wal-Mart had put some resources toward perfecting the Neighborhood Market format ten years ago, and built more of those. I still see a tentativeness in Wal-Mart’s risk appetite. In the three years Wal-Mart has been tweaking its Express model with a dozen or so stores, Dollar General has added 300,” Nicholas said.

While Wal-Mart is starting to engage the store-in-store concept with Apple, which analysts applaud, Amazon already sells Apple and has innovated it’s own brand of tablet – the Kindle Fire.

As Wal-Mart was busy reversing the course of “project impact” by putting a few thousand items back on the shelves, Amazon purchased and – two online businesses raking in more than $1.3 billion a year in sales, according to Nicholas.

He and Ribgy said the digital revolution waits for no one. While Wal-Mart has invested in it’s e-commerce business, they say figuring out how to leverage the physical footprint and massive supply chain with the growing virtual audience will likely require a bold initiative to move the needle.

Nicholas said Wal-Mart is tiptoeing toward the challenges, testing lots of small initiatives like same-day delivery and scan-and-go in very limited markets.

“They need to take a bold step like they did with the $4 generic drug announcement a few years back. That was a game changer and any bold step Wal-Mart makes is likely to move the needle forward in e-commerce,” he said.

Kantar noted in its Retail 2020 report issued last month that supercenters could very well one day be automated distribution centers filling online orders.

Rigby sees the real possiblity of pick-up stations, where orders for grocery, apparel and electronics are packaged according to customer orders. The consumer drives through the station and picks up the merchandise ordered online. This model already in use in some parts of the world, according to Bain & Co.

Craig Johnson, president of Consumer Growth Partners, said Wal-Mart and its suppliers will have to figure out how to revamp its supply chain and delivery options as more sales move to the digital channel over the next several years.

“As long as brick and mortar sales still represent a lion’s share of the market, retailers will likely stay focused here, because of the return on investment. For Wal-Mart, e-commerce is still a very small percentage of sales,” Johnson said.

He believes the suppliers will innovate as needed to address the changes coming in the next several years.

E-commerce sales totaled $41.9 billion in the third quarter of this year, growing 15% annually. This channel of shopping is expected to grow 16% through the holiday season, according to Bain & Co. estimates.

Rigby said e-commerce retailers like Amazon are leaner, more nimble with a healthy appetite for innovation that has made them the benchmark to follow. Rigby and Nicholas say Wal-Mart’s talent acquisitions in its @WalmartLabs division were a step in the right direction. But that’s just the beginning of what will be needed to lead in this next revolution.

“Brick-and-mortar stores remain critical in the omnichannel world. When they are integrated into the omnichannel strategy and managed effectively, they can offer consumers advantages over online-only competitors,” according to the Bain report.

The report also noted: “E-commerce may be taking share, but brick-and-mortar stores still account for approximately 90% of all retail purchases.”

To dig deeper into the role of stores, Bain said it teamed up with ShopperTrak to understand
how foot traffic has changed since the recession. After four years of declining traffic, a small rebound has been recorded – up 4.3% in 2012 through October.

Bain said the boost does not make up for the cumulative traffic loss of 16.1% from 2007 to 2011, and traffic remains far below prerecession levels.

Rigby’s team says omnichannel retailing is hard and disruptive — and critical to get right.