Wednesday, April 16, 2008

The most successful business can make stupid decisions

And yesterday's move by Wal-Mart to sign onto His Idioticness Michael Bloomberg's "Mayors Against Illegal Guns" anti-gun agenda is one of those decisions.

Wal-mart has been feeling competitive pressures of late (which I believe are about to be relieved by a down economy) and more importantly has almost completely failed to penetrate the urban market, which is the last big untouched market left to them. So, according to Jim Shepherd, they are going to make whatever business decisions they must in order to get into the urban areas. Those decisions appear to include jettisoning their outdoors product lines. Go read Jim's piece; I'll wait until you get back.

Ah, there you are. Jim believes that the ending of the outdoor product lines is still an "if". I am more pessimistic--it's a "when". Jim gives it to us himself: "No one has ever questioned Wal-Mart’s expertise at general retail." True enough. They are the preeminent general retailer in the US. They have a distribution system that is the envy of all other businesses. It's damn hard to go a week without going to Wal-mart. In an economy where prices are steadily going up, Wal-mart is still able to "Roll Back" prices on many items. Wal-mart very nearly has a "license to mint money".

However, Wal-mart is making three big mistakes, common to little companies that get really, really big. First, they're forgetting one of their core markets--all of us folks who cling to religion and guns (or fishing rods in season). That core market is still a large part of Wal-mart's revenue, and they ignore it at their peril.

Second, they're forgetting the concept of "market segmentation". Most of us out here in the hinterboonies have no problem if a Wal-mart in suburban Dallas, Texas doesn't sell guns, ammo and fishing gear. As long as it's sold in our Wal-mart, we're good to go. However, their quest for efficiency (which is even more insatiable than their quest for growth), is going to lead them to take the outdoor goods out of all stores, not just the suburban ones. If they keep them in some stores and not others, its going to be messy, inventory-wise--and MBAs hate messy. Since Wal-mart is now firmly in the clutches of the MBA crowd, I think this mistake is just too attractive for them not to make it.

Third, they're crawling in bed with a political pressure group. Like all extortionists, the Mayors Against Guns (Let's have some truth in advertising, shall we?) won't stay bought for long. They'll be back, this time demanding that Wal-mart do the "socially responsible thing" and stop selling those evil "long range sniper rifles", which the rest of the world knows as "deer rifles". Then it'll be shotguns, and finally ammo. Think I'm wrong? This has been the anti-freedom forces methodology for decades, and its worked. They won't abandon it now.

Capitalism being what it is, I suspect that Wal-mart is sowing the seeds of their own downfall. Other businesses will expand or be created to serve those product lines Wal-mart is dismissing (at least in the areas where it really does sell). It'll be interesting to see if Wal-mart figures it out in time, or if they just turn into a down-market "Tar-jay" instead. Or maybe a up-market K-mart?

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