Walmart Takes Steps to Deal with Dollar Stores

Discussion
Jan 26, 2011
George Anderson

Former Walmart CEO David Glass once famously named dollar
stores as the biggest threat to the chain’s dominance in the retail market.

More
than 10 years later, Mr. Glass’ concerns appear to be born out by a New
York Post
article that reports Walmart is asking suppliers to come to
the retailer with their lowest "opening price points" to deal with
competition from the likes of Dollar General, Family Dollar, etc.

One unnamed supplier
to Walmart told the Post, "It’s pretty unusual
to have them calling you instead of the other way around. They told us, ‘The
dollar chains are eating our lunch, and we’re not going to let them do that
anymore.’"

Another quote attributed to a supplier to Walmart claimed, "The
message is, ‘Anybody who can deliver opening price point [goods] for us will
become a vendor — anybody who can’t, can leave.’ Not since the 1990s have
we seen Walmart signal this level of competition on price."

Discussion Questions: Are dollar stores “eating” Walmart’s lunch as suggested in The New York Post report? If the report is correct, what will Walmart’s response mean for its dollar store competition?

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20 Comments on "Walmart Takes Steps to Deal with Dollar Stores"


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David Biernbaum
Guest
10 years 3 months ago

In my opinion, Dollar stores do not hurt Walmart’s business, however, I do not fault Walmart for using the Dollar stores model to help negotiate its own costs of goods with certain manufacturers. There are indeed some likely crossovers in certain types of products carried.

Max Goldberg
Guest
10 years 3 months ago

If I were Walmart, I’d be more concerned with Amazon than dollar stores. Amazon can exceed WM in number of items carried, frequently beat WM on price and offer significantly better customer service, all from the comfort of one’s desk chair. When coupled with Amazon getting into the grocery business and offering free delivery or shipping, it’s a potent draw for consumers.

Steve Montgomery
Guest
10 years 3 months ago

The dollar store channel and Walmart focus on the same value conscious customers–those were the original base for each and those that sought them out during these difficult economic times. While the dollar stores utilizes a much smaller footprint than does Walmart, but there are tens of thousands of them and they are more local to the populations they serve.

For Walmart, each dollar store near them is just a small cut in potential business but given their numbers, it’s like “death by a thousand cuts.” This channel will continue to grow as a competitor as it units increase and it develops more consistent source of supply and better merchandising.

Dr. Stephen Needel
Guest
10 years 3 months ago

Determining whether dollar stores are impacting Walmart is an empirical question–you look at WM store sales when a dollar store moves into the area. I wonder what products are being hurt, if they are, by dollar stores? And is it because dollar stores are selling for a lower price or is it an inferior assortment.?

I suspect “cheap” is misinterpreted in this article. Walmart may want less expensive products, on a pure dollar basis (not per ounce/pound). I don’t think they want inferior products to compete with dollar stores. This would take them into the realm of Kmart and would hurt them in the end.

Paula Rosenblum
Guest
10 years 3 months ago
Dollar Stores are a PART of what ails Walmart. They mostly sort of nibble around the edges–as a destination for particular items like paper towels or other items on special sale. And having just visited a Family Dollar store, I was really impressed by the way the store has been re-merchandised. Much less clutter, open aisles, and less of a sense of “schlock” than in the past. And they are small enough to be shoppable and convenient–quick in and out. But that’s only a piece of the puzzle. As others have pointed out, Amazon is also a threat to Walmart, as are traditional supermarkets who have figured out how to be close enough on price (especially with their far-more successful private label offerings) while delivering better service. The surviving toy chains have also weathered the storm, and I don’t expect Walmart will take more share from them. Finally, like every chain in the known universe, Walmart may well just have run out its growth string. There is no such thing as an unlimited market. While… Read more »
Ian Percy
Guest
10 years 3 months ago
What is the absolute fastest a man will ever run 100 meters? How close are we to that number? Right now it’s 9.58 seconds run by Usain Bolt. Could someone do it in 5 seconds? 3? My point is that there IS an absolute number, that is until we learn to leap parallel universes at will or until we can physically morph from one end of the track to the other as quick as a thought or the speed of light…which as far as we know is the mother of all absolutes. Here’s where I’m going with this. Is there an absolute lowest price point for any item, that is a price that literally no one can lower no matter what? In other words someone is declared the lowest price winner for all time. That seems to be Walmart’s goal. So how wise is that pursuit? Surely there will be significant collateral damage resulting from that goal. Have we learned nothing from buying lowest cost items from China? Cheap drywall destroyed the health of thousands.… Read more »
Anne Howe
Guest
10 years 3 months ago

Others are beating Walmart on price besides Dollar and Amazon. Kroger and Target can and will go after the shopper with very aggressive prices. But really, why is this all about a race to the bottom?

Walmart will now squeeze manufacturers down the price chute, causing them to stop funding innovation and ideas that can help solve shopper problems. The long-term effect pushes shoppers to venues where they can “feel or connect to something” when they shop. Price is not the only game to play in retail. Plus, if shoppers choose to play the price game, they now have all the tools they need to win, despite what each retailer might try to do with their business practices.

I can name at least five online and five bricks retailers that are “fun” to shop on a regular basis. And, they provide new merchandise, innovative engagements and make me feel valued as a customer. This race is the one to be in.

Gordon Arnold
Guest
10 years 3 months ago

Walmart needs to call China if it wishes to discuss shutting down the dollar stores. And with 10,000 + dollar stores of one name or another selling closeout inventory at break neck speed, they are likely to be on hold for a long while. Message to Walmart: If you can’t beat them forever, beat them while you still can!

Kai Clarke
Guest
10 years 3 months ago

Walmart has every reason to be concerned. The dollar stores ARE eating their lunch, and their profits show this. Both of these chains are going after the same consumer, and every consumer which goes to a dollar store does not go to Walmart. This translates into lost gross revenues and lost consumers entering Walmart’s doors.

Also, the dollar stores operate on a higher efficiency level than Walmart, using actual net selling costs for their products, instead of Wal-Mart’s trumped-up net costs. When Wal-Mart realizes the strengths of actual net pricing and how this translates into a lower price for the consumer, they will realize how important it is. Until this epiphany occurs, Walmart will continue to waste and not offer the best price to their customers…thus losing out to the Dollar stores on a daily basis.

Cathy Hotka
Guest
10 years 3 months ago

One reason for the astonishing growth of dollar stores is their easy-to-get-to locations. Family Dollar has over 6,800 stores in the US alone. Paula is right about finite growth potential, and Walmart’s dearth of small-format stores is clearly one reason.

David Livingston
Guest
10 years 3 months ago

I agree with David Biernbaum; Walmart couldn’t care less about dollar stores. But dollar stores make for a good excuse to beat down suppliers. Next Walmart will be whining to suppliers because Aldi sells groceries cheaper and Aldi is finding success in Walmart’s out-lot parcels.

Gene Hoffman
Guest
Gene Hoffman
10 years 3 months ago

Let the great Walmart spin that dollar stores are “eating our lunch” but they well know that ever down the ringing grooves of change comes new competition. When you are king of the jungle there will always be a hungry young jackals seeking to reduce your kingdom. Me thinks Walmart just wants still lower costs from suppliers.

Jerome Schindler
Guest
10 years 3 months ago

In my general neighborhood, when Walmart built a new store nearby the Aldi nearby closed. I thought that the reason was Walmart was eating into their sales. However, the reason was that Aldi was tearing down their old store and building a bigger one. The Walmart store spurred the building of a strip center across the street from them. One of the major tenants is a Dollar Store. So obviously these stores take away significant volume from Walmart.

Mark Burr
Guest
10 years 3 months ago

I have said more than once, that no ONE retailer will overtake Walmart. Retailers in numbers, however, will. dollar stores are just one of those little scrappy dogs that are biting at their pant leg like many others. That one by itself won’t do it. A pack of them exist. They are out there. They are changing the marketplace.

Walmart attacks retailing on every front. Retailers of all kinds, just like dollar stores, are attacking. The thing is, they weren’t having an impact. Now they are. Walmart is now in an unknown position to them. A position of both offense and defense.

Ken Dailey
Guest
Ken Dailey
10 years 3 months ago

Dollar stores are by definition targeting lower spending households and are not “eating WM’s lunch”. I think WM owns the quality at low price point, i.e. key brands…AS with any EDLP retailer, WM would want an assortment strategy in place which gives them their fair share and covers market gaps. Closing those gaps only makes sense and would be a best practice typical of good category business planning.

The only question that is really relevant is, “Are people not shopping my store because they can’t find what they need at a price they are willing to pay.” I need opening price points in those areas. A different problem is when people find brands at lower prices.

Carol Spieckerman
Guest
10 years 3 months ago

Walmart is indeed concerned about dollar stores as they have been for quite some time, and of course Walmart doesn’t just decide to develop free-floating anxiety about a perceived competitive threat–they have the numbers to back it up!

The portrayals of why they are concerned have been fairly one-dimensional, however. Walmart is determined to roll out small format stores in urban markets. Who is already there? Dollar stores…droves of ’em! Walmart isn’t just looking at today’s market share, they are setting the stage for future expansion and beating the original small format “general stores” at their well-honed game isn’t going to be easy (particularly as they preemptively improve it through private brand refreshes and expansion, brand partnerships and food forays).

The fact is, many dollar stores don’t beat Walmart on price item-for-item and they haven’t had to since many sit on virtual urban islands. As those islands turn into oases of choice, convenience will be table stakes and price and assortment will win the day.

Ed Rosenbaum
Guest
10 years 3 months ago

Like many of my colleagues, I do not see the dollar stores having an immediate threat–or even any threat–to Walmart’s business. Someone in an earlier comment said the Dollar Stores nip at Walmart but do not take a bite out of their profits.

My perception is Walmart thinks all the business should be theirs. No need to share when there is enough to go around when I want it for me. Poor old Mr. Sam. I doubt this was in his master plan.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 3 months ago

Being the low-price leader is an exhausting chore. Walmart regularly takes on these kind of initiatives to be sure they are pushing the envelope and doing everything they need to do to remain the leader. For every segment of their business, there are competitors they need to constantly stay a step ahead of, whether it’s Dollar General, Family Dollar, or Walgreen, CVS, Aldi, etc.

Craig Sundstrom
Guest
10 years 3 months ago

And if it weren’t for dollar stores would WM say to suppliers “your prices are low enough, our customers don’t want any more”? No. I’m with the two Davids on this: WM is (in)famous for treating vendors in ways that the Geneva Conventions frown on, and this claim of ruinous competition is just one more excuse to tighten the thumbscrews … metaphorically if not literally.

Eliott Olson
Guest
Eliott Olson
10 years 3 months ago

Can a small Dollar General doing about $27,000 a week eat the lunch of a Walmart supercenter doing $1,340,000 a week? Maybe not, but there are 9,200 Dollar Generals, 6,785 Family Dollars with 300 more on the way this year and over 4000 Dollar Trees. They do about 25 billion or 10% of Walmart’s US sales. They are convenient with small trade areas. They are cheap to operate. Dollar General states that they can open a store with a population base as low as 2,000 families. There are about 5.5 dollar stores for every Walmart.

Could 20,000 stores with consumables as their dominant department contribute to Walmart’s flat same store sales growth? Can increased variable costs in aging stores with flat sales expect lower profits? Will tunnel vision, silo-dwelling executives try to increase margin by either raising grosses or lowering inventory? Will either one of these moves increase tonnage? Can a small teeny tiny virus kill you?

Walmart will be around for a while but not forever.

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