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Wal-Mart's Controversial Growth Revolutionizes American Retail (Part 2)

Since Sam Walton founded the first Wal-Mart store more than 40 years ago, the discount retail chain has revolutionized American retailing with both positive and negative effects on the nation's retail industry.

Wal-Mart took the idea of the department store and the grocery store and turned it into something revolutionary: the big box store. In it, people can purchase almost anything they can imagine, from tools to clothes, computers to food - and virtually everything in between. Convenient? Absolutely.

And with Wal-Mart's traditionally low prices - nearly 20% lower than other retailers - shoppers have come in droves. Jorge Leis, a retail expert at the consulting firm Bain & Company, says the biggest impact Wal-Mart has had on the retail industry is introducing their everyday low price strategy, continually and almost ruthlessly providing goods for a lower price than the competition. "Thereby forcing everyone to be more efficient with capital (and) more efficient in terms of managing costs," he says, 'so they can approach at least the prices that Wal-Mart will bring into a market."

Unfortunately, that hasn't been possible for many stores, especially small, independent shops - the so-called Mom and Pop stores. As a result, many of these businesses have had to close their doors. And that has led some communities to oppose Wal-Mart stores opening in their regions. Throughout the United States, several hundred communities have passed laws that block the advance of retail giants such as Wal-Mart into their area.

Senior Vice-President of Boston Consulting Group Michael Silverstein takes a dim view of big-stores' opponents. "There are a handful of communities where people said, 'We don't want to pay lower prices, we want to pay higher prices; we don't want to support efficiency, we want to support inefficiency,'" he says.

But it is possible to compete with Wal-Mart. Some major retailers in the United States have not only survived competition with Wal-Mart, but have thrived. Target is one such company. It's a similar type of store, offering virtually everything shoppers might want under a single roof. Its prices are fairly low. But the niche it chose for itself is that of a step above Wal-Mart in terms of quality. The company has even hired designers to create its own line of products. The key to competing with Wal-Mart seems to be offering extra advantages - like the designer Target products - in addition to low prices.

Jorge Leis says that according to research done by his company, Bain and Company, competitors won't run Wal-Mart out of business, but they can grow alongside it. "What we found is that market leaders actually grew with Wal-Mart," he says, "and Wal-Mart, together with the market leader, stole share from the followers in that particular market. And this happened again and again and again as we go into discreet cities and understand the phenomenon. We have [studied] a number of cities, and in every case, the leader grows with Wal-Mart, and followers decline in market share."

Mr. Leis says these major companies usually follow four strategies: when they open a new store, they cut into the trading zone of the other stores in that area; they survey the customer base and determine what those people need, then try to attract customers in a manner that differs from Wal-Mart's.

Next, they treat price-setting as a science, not an art -- they figure out which products their customers are most interested in, and set the prices of these items to more or less the same as Wal-Mart's. To maintain profit, they set prices of other goods slightly above those at Wal-Mart.

Finally, when it comes to operating costs, they are just as ruthless as Wal-Mart, especially with regard to supplier and management costs.

Mr. Leis says that by using these strategies, companies that lead a local market before Wal-Mart arrives are usually able to continue to expand their share of the market even after Wal-Mart moves in.

This report was based on reports and interviews originally done by Ruosi Wu of VOA's Mandarin Language Service.