Changing Demography and Your Future

Wal-Mart Tries Again

I read in yesterday’s Wall Street Journal that Wal-Mart is making another try at fashion on the heels of a colossal flop last year. If you scroll back in my blog you will recall that I wrote in 2006 about Wal-Mart hitting a wall. I am going to pull some excerpts out of that entry and note them in italics. This new foray into fashion is clearly a different strategy than last year and may even have a chance at success, albeit slim. So what’s the difference? Wal-Mart is aiming at Generation Y, kids under twenty-four with fun cheap current fashion with a deep level of assortment. From my perspective this is exactly what they need to do because Generation Y is the only emerging fashion market along with being the biggest market ever in U.S. history. Last year Wal-Mart attempted to sell “high” fashion to the Baby Boomers and they crashed and burned.

(From 2006 Blog “Wal-Mart Hits a Wall”)

Wal-Mart is essentially a Baby Boomer (eighty million people born 1945 to 1964) based business but I don’t get a sense that they are aware of it. Wal-Mart’s retail concept is narrow, cheap and deep. This means their success is built on low price, limited selection and vast quantities (generally made in China). Where they are going to get tripped up is on selection. You see Wal-Mart has figured out what the mature Boomer market buys. They have then refined this demand to the narrowest selection possible, almost telling Boomers what they will buy. Boomers in turn are OK with this because when you are between forty-two and sixty-two years old you have pretty defined tastes and preferences that influence your buying of stuff. If Wal-Mart does not have what Boomers really want but does have something close at a very low price, Boomers will buy it. So where is the rub? Simple. When a consumer hits about fifty years old their demand for stuff begins to subside. At sixty years old you pretty much have all the stuff you need and then some. Your body has stopped changing so you can wear clothes longer, a lot longer. If you want to see what was fashionable thirty years ago go to a Miami retirement community. The point here is that the bloom is off the rose of the Boomer’s consuming. The Boomer population is a huge bell shaped curve with many Boomers turning sixty at its leading edge and with its very top cresting fifty years old in 2007. All of this means that Wal-Mart needs to find a new market fast if they want to continue doing business. But where do they turn? The two US generations over sixty do not have the critical mass to serve their infrastructure. The population (eighty million) now twenty-two to forty-three years old in the US is a non-homogeneous combination of the undersized native born Generation X and the free standing market of Latino immigrants. (Latinos are not evenly dispersed through out the United States but live in geographical pockets)

So who’s left? Generation Y, born 1985 projected to 2010. Generation Y will be the largest and most powerful consumers this nation has ever seen. They are already consuming at five hundred percent of their parents level in adjusted dollars age for age. Will they be the solution to Wal-Mart’s sales problems? NO. Generation Y is an emerging market, a huge bell shaped curve with its peak at age seventeen. They are inhaling entertainment products, fashion, food, electronics and transportation. Selection is everything to them. They do not care about low price. Their tastes change daily. They don’t know what they will want six months from now. Wal-Mart’s limited selection low price offering to the Boomer will not and can not translate to Generation Y.

Can Wal-Mart pull off this transition into Generation Y fashion? I don’t think so. Let me site a few of the reasons:

Fashion is a tough business that requires a lot of expertise and intuition. Just when you think you know what’s hot- It’s not! Markdowns on fashion are huge because something that is out of style doesn’t sell at any price. Fashion works best with small retailers who can get in and out of small quantities fast. Fashion is all about selection. Fashion is not driven by price. Fashion is about very fast turnaround from trend to manufacture to selling floor. In case you haven’t noticed I have not described Wal-Mart. If Wal-Mart wants to succeed in the fashion business they need to really change their corporate thinking and sales model. Is this possible? Yes. Is it probable? I don’t think so.

Wal-Mart has other issues that will play into their fashion businesses’ success or failure. Wal-Mart and China are joined at the hip. Wal-Mart does more business with China than Germany does. Despite popular belief China’s economy is not healthy or stable. Read my blog about the net affects of China’s one child policy on their emerging labor force. It is much smaller because by their own official estimation China has prevented 400 million (this is not a typo) births in the last thirty years. A smaller labor force in China means higher labor costs and higher product costs for Wal-Mart. Couple this with higher shipping costs, a falling U.S. dollar, a slowing U.S. economy and you have the making for a still born fashion effort.

Oh yes, one more thing. Generation Y is going to be the greenest most humanitarian generation in the history of our Nation. If you want to do business with them you had better be very green and very nice to your fellow man. The popular perception is that Wal-Mart has a dismal record on both accounts. Perception is reality. This fact could kill their business all by itself.