Does Walmart Have A Future?

Here in Los Angeles, Walmart is still trying to bust into town. Their latest foray involves taking over a warehouse on the edge of Chinatown. The community is split whether or not they want to commit suicide. Most L.A. politicians are still trying to determine which parade to rush to the front of.

In the past, LA City Council has been unfriendly to Walmart. In 2004, the council passed an ordinance to hamper Walmart's attempt to move into Inglewood. The ordinance allows the city to review job quality and threat to other businesses before approving stores larger than 100,000 square feet. In Chinatown, Walmart is getting around the ordinance by planning a "Neighborhood Mart," which is one fifth the size of its superstores.

On Thursday, the Los Angeles Alliance for a New Economy announced that it, along with the Asian Pacific American Labor Alliance and Chinatown business owners and residents, filed an appeal with the city's building and safety department. The appeal requests scrutiny into how Walmart, after months of waiting for permits, obtained them the night before the council vote.

And this isn't the only problem Walmart is having in southern California. After more than five years-- and nearly three years in the courts-- a small community group in Quartz Hill, an unincorporated area of Lancaster will officially announce it has brought retail giant Walmart to its knees after the 2nd Court of Appeals ruled the City erred in its Environmental Impact Report.

It's considered a major loss to Walmart, which is trying to build its store next to a school while selling
sell alcohol, ammunition and weapons.
 
Residents learned in late 2006 that Wal-Mart had plans to build in the location. The Lancaster Planning Commission reportedly opposed it, but in 2008, Lancaster mayor R. Rex Parris fired the commission. The new commission approved the plan in early 2009.

Quartz Hill Cares sued the city, arguing that the city had violated Planning and Zoning laws and the California Environmental Quality Act (CEQA). On June 29, 2010, the Los Angeles County Superior Court determined that allegations made by Quartz Hill Cares against the City of Lancaster were unfounded
 
However, the Second District State Court of Appeal issued a 32 page decision overturning the 2010 decision of the Superior Court of Los Angeles County, noting the EIR was "insufficient as an information document because its findings that the Reduced Commercial Density Alternative was not economically viable lacks the required evidentiary support. Because its conclusion is unsupported by substantial evidence, therefore, the City prejudicially abused its discretion by failing to proceed in a manner required by the California Environmental Quality Act."

"This is a great day for the citizens of Quartz Hill and the entire Antelope Valley. To fight something for nearly six years and to come out on top is huge. We fought Walmart, we fought City Hall... we won. We realize that this might not be the end of this. The city (Lancaster) could re-do the EIR and submit it again. If they do... we (Quartz Hill Cares) will be here," said Loretta Berry, of Quartz Hill Cares.

But Walmart might have even bigger woes than not being able to open community-destroying stores in the Antelope Valley and Chinatown. Last week the Motley Fool reported on the consumer trends that are slowly killing Walmart. Walmart's retail empire is crumbling, "Fool" writes, because they've "failed to keep up with the innovation, and now other companies are successfully changing consumers' behaviors in a way that is slowly killing the world's most famous retailer." Walmart's quarterly earnings have continued declining.

Shopping behavior has changed. And even though the recession forced many Americans to "trade down" to cheaper items like the ones Walmart is famous for, consumers sought out new ways to do so. In many cases they traded even further down and headed right for the Dollar Generals (DG) of the world.

More frightening for the company is that even Walmart's core customer base of low-income households is now a significant part of this epic shift in shopping behavior.

The change, of course, is that traffic has shifted from physical stores to online stores. In fact, a startling 50% of Walmart's customers now shop on Amazon.com, versus just 25% five years ago.

Amazon's low prices (thanks to its low overhead expenses and no sales tax in most states) and unbeatable selection (thanks to the acquisition of companies like Diapers.com and Zappos), combined with the convenience of online shopping, have attracted a growing fan base of customers-- stealing more and more customers away from Walmart.

Even Jeremy King, the chief technology officer of Walmart, admits Walmart.com is "playing a catch-up game" with Amazon. And yet it's pretty clear that any attempts to compete with Amazon online will be futile.

That's because Amazon's reach will only continue to expand as it builds out its Kindle platform. The ease of purchasing with just one click from virtually whatever device you choose (your computer, phone, Kindle, or even Apple's iPad) will continue to attract a growing number of consumers-- again, spelling bad news for Walmart.

On the physical front, the most revolutionary Walmart killer is Costco.

Costco, a members-only warehouse chain, targets a more affluent demographic than Walmart but similarly prides itself in offering heavily discounted items. Even though Walmart has a similar arm of its business, Costco is light years ahead of Walmart's Sam's Club.

Costco's charm permeates many levels.

• Markups on products are heavily controlled. Items can never be sold for more than 15% of cost (whereas supermarkets will mark up items by 25%, and department stores mark items up by as much as 50%). This means consumers always know they'll find unbeatable bargains. And that keeps them coming back for the majority of their shopping needs.

• Stores require little upkeep. They are bare bones in design, meaning they require less maintenance capital than its more posh (by comparison) competitors. Plus, Costco only stocks around 4,000 items. Walmart's stores, by contrast, often carry more than 100,000 different items, which constantly need shelf attention.

• Shopping is easier. The smaller scope of products makes the purchase decision easier for customers. But it also generates higher sales volumes, which enables Costco to sell items quicker than they have to pay their suppliers for them-- and allows them to negotiate even lower deals with these suppliers.

• Costco has a secret ingredient. The stores have an additional element that Walmart will likely never be able to replicate: the "treasure hunt." Costco constantly stocks shelves with new items available for just a short time. Customers return excited to see new offerings, and they often leave with items they hadn't intended to purchase.

• Returns are never a problem. Even if shoppers later decide their impulse buys were unwise, Costco has the most consumer-friendly return policy out there, accepting returns on most products without a receipt and with an infinite timeframe.

Given all this, it's little surprise that Costco's retention rate for members hovers around 90%. This means that once a customer gets a taste for the savings-- and experience-- Costco offers, he or she will likely be a customer for life. Again, bad news for Walmart.

It is unlikely Walmart will completely disappear anytime soon. But as more of its customers switch to Amazon for online purchasing and Costco for physically purchasing cheap items in bulk, it will become increasingly difficult for Walmart to grow-- and survive.