In a poll of 500 corporate executives taken last year, Wal-Mart was selected one of the three most admired U.S. corporations. But others view the company as a voracious force that has altered forever the pattern and tempo of commercial life in small-town America. As Wal-Mart rolled out its franchises, it sucked commerce off Main Streets, destroying traditional retailers that had served their communities for generations. But in the face of the abundance Wal-Mart produced in the form of more jobs, consumer savings, and expanded trade, the loss of Main Street life seemed an incidental price to pay.
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The keenest student of Wal-Mart is Ken Stone, a professor of economics at Iowa State University who specializes in retail trade and rural development. About eight years ago Stone started hearing from small-town Iowa merchants whose downtowns were dying. He began gathering sales-tax data and concluded in 1988 that Iowa towns within a 20-mile radius of 14 Wal-Mart stores saw total retail sales decline by 25.4% after five years. Even towns outside that 20-mile radius felt Wal-Mart's pull. Their retail sales declined by 17.6% after five years. "I was amazed by the impact of Wal-Mart," says Stone.
Stone further found that the sales of small specialty stores decreased substantially. Eight years after Wal-Mart's entry into Iowa, department stores -- led, obviously, by Wal-Mart -- had added $334 million worth of revenues, amounting to a 20.2% gain in market share, while clothing, drug, jewelry, auto-parts, hardware, variety, and grocery stores had all lost market share ranging from 2% to 44%.
Wal-Mart's strategy relies on developing overwhelming critical mass. The chain often simultaneously opens stores of 90,000 square feet and up, eventually putting them so close together that they compete with one another. (Wal-Mart has 230 stores in Texas alone.) Wal-Mart's vice-president of corporate affairs, Don Shinkle, says that the number of stores the company has closed because they have not performed to expectation "can be counted on one hand." That does not include stores the company routinely closes -- only to move them to more strategically placed sites.
The more Stone observed this juggernaut, the more he realized that the only hope small merchants had was to niche around it. That meant improving customer service, tailoring selection to customer needs, and not competing directly with Wal-Mart's product lines. "There are a lot of voids and niches that can be filled by specialty retailers -- and that's the only hope," says Stone, "because Wal-Mart skims the cream. It has a distribution system that is the best in the world. Its costs are lower than anyone else's because it ties the manufacturer right into its stores."
Stone also notes that Wal-Mart management won't tolerate shrinkage -- loss, theft, and damage of inventory -- and adds that not keeping an eye on that is a way for Wal-Mart managers "to get fired real fast." Wal-Mart aims to keep shrinkage at around 1%, while other retailers typically settle for between 3% and 5%. Similarly, Wal-Mart, which relies on word-of-mouth promotion, spends .5% of sales on advertising, roughly one-quarter of what K mart and Sears each spend. By running leaner, Wal-Mart can charge less -- and make more. Last year Wal-Mart's gross margin was 22%, eight points below that of Sears, yet Wal-Mart's net profit margin was 4%, nearly double Sears's 2.2% in 1991. (Last year Sears took a onetime charge, resulting in a loss.)
In the process of understanding the Wal-Mart phenomenon, Stone began advising local merchant groups on how to parry the retailing giant's thrusts. In that capacity he has traveled to every state in which Wal-Mart now has a store.
Two years ago Wal-Mart announced it was entering yet another state -- Maine -- building about 12 stores there, all to open within about 15 months. The number of stores occasionally expanded to 15, inevitably the product of Arkansas secrecy and Maine rumor. The sites shifted, as did the opening dates. But what emerged for sure was that Wal-Mart would build on the outskirts of Brunswick, about 6 miles west of Bath; in Rockland, 45 miles to the north; and in Auburn, 30 miles northwest. Bath would not come under siege on its eastern flank, as Wal-Mart had yet to float an offshore platform on which to put a store.
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Bath, Maine, is a predominantly blue-collar town dominated by shipbuilding, a trade embodied by Bath Iron Works (BIW), whose giant cranes loom above the town, competing with the church steeples that pierce the sky. BIW has been building ships for the navy since World War I, and before that Bath's shipyards built many of the great clipper ships of the 19th century. In 1890 Bath was the fifth-largest shipbuilding center on the East Coast. Today it is a sleepy town of 10,000.
With defense cutbacks, BIW, which once employed 10,000 people and drew workers from as far away as 100 miles, has been in slow and steady decline for the past 10 years. Into that void there have stepped -- to some degree -- specialty retailers who have scratched a living from the spartan Maine economy. The specter of decline recedes in downtown Bath, with its occupied storefronts, brick sidewalks, and street lamps harking back to the gaslit days.
The prospect of a Wal-Mart opening just six miles away, on the outskirts of Brunswick, divided Bath's business community. On one side, a comfortable old guard looked at the traditionally high occupancy rates in Bath's busy downtown and wondered what all the fuss was about. "There was a fear on the part of some people that if you talked about something negative, it would make everything negative," says Jayne Palmer. "We, on the other hand, saw Wal-Mart's coming as the catalyst that would mobilize and organize the downtown merchants."
