In Innovation Management, we describe the American retailing giant Wal-Mart’s business model in detail. (See, for instance, our discussion of Wal-Mart founder Sam Walton’s business values, pp. 129-30, and Wal-Mart’s competitive model, p. 266).
Wal-Mart’s “everyday low prices” were built on leveraging economies of scale, low-price Chinese suppliers, advanced satellite-based IT systems for inventory and shelf management, and ‘float’ – paying suppliers in 90 days, while selling their goods within 7. The latter ‘float’ is a three-month interest-free loan, which on Wal-Mart’s annual $351 b. annual sales (now second to Exxon-Mobil in revenues), is worth about $4 b.
But in 2006, Wal-Mart’s earnings per share barely rose, its market value at end June is roughly the same as a year ago, and its share price, under $50, is far below its 2000 peak of $68. “Is the world’s biggest retailer in trouble?” asks The Economist, in its Feb. 15th issue.
The answer is, No! Having innovated on the supply side (cost and efficiency management) Wal-Mart is now innovating on the demand side – on the products it sells. On June 20, Wal-Mart announced that having abandoned plans to start its own bank, it will instead offer a series of financial services to its customers, through Wal-Mart Money Centers (check cashing, bill payments, int. money transfers). Also, Wal-Mart will issue a Wal-Mart MoneyCard, a prepaid Visa card, which will cost $8.95, for buying gas, and for shopping online. Financial services is a new growth area for Wal-Mart. Faced with a decline in same-store sales in April, and a failure of its effort to sell more upscale (higher-priced) items, Wal-Mart grappled with a traditional strategic dilemma: Sell more (goods and services) to same (customers), or – Sell same (goods and services) to more (customers). The choice: More to same. According to Business Week (June 20, 2007), the new younger generation, Gen Y, is more open to handling its financial transactions with companies that are not real banks. “In a decade Gen Y might think that Wal-Mart is as much a bank as Bank of America,” notes Business Week.
“More to same” strategies require strong innovation management skills. Observers will watch Wal-Mart closely to see if its core competency in innovation is as high as its core competency in operations management.