Will the Internet 'Wal-Mart' Wal-Mart?

By Scott Bradner
Network World, 11/01/99

Mayors of small towns shudder whenever Wal-Mart decides it wants to build a new superstore in the area. They fear, with some historical justification, that the Wal-Mart will draw so many customers away from local mom-and-pop stores that these small retailers will go out of business and the downtown area will wither and die.

An interesting turnabout may be about to happen: The Internet may do to Wal-Mart what Wal-Mart has done to many small towns.

Before I get any further, I want to be clear that the Wal-Mart effect is one that clearly benefits consumers. Consumers would not drive out of town, away from the stores they have patronized, sometimes for generations, unless they thought they were getting a better deal. It can be hard on the mom-and-pop stores, but I guess the change is what's known as progress.

Now along comes the Internet with phenomena such as Amazon.com that may threaten the superstores. And they threaten not just Wal-Mart but any number of targeted superstores, including music stores and office supply stores. Fortune magazine dedicates much of its Nov. 8 issue to e-business, and the stories highlight two themes that do not bode well for the Wal-Marts of the world.

The first theme is that it seems to be almost impossible for most large retailers to figure out how to use the 'Net. Their internal processes are far too plodding (Fortune claims they are too addicted to PowerPoint) to be able to operate on Internet time to compete with the new, venture capital-driven upstarts. Because of this, a number of the big, old companies are spinning off separate start-ups to get around the fact that "all deliberate speed" in a big corporation tends to be lethargic in the extreme on the 'Net.

But the second theme will really give the superstores a hard time. How can Wal-Mart create a major presence on the Web without cannibalizing its real-world stores? Wal-Mart could do what Office Depot has done and not price its merchandise lower on the Web than in the physical stores, but that leaves a big door open for competitors to undercut Wal-Mart. This is not an issue for the big catalog firms, such as Lands' End and MacWarehouse, which can just treat the Web as an alternative to their existing phone banks with no worries about cannibalization.

The problem is just as difficult for the large, distributor-based businesses, such as the auto industry, whose dealers are getting increasingly nervous. If the 'Net "Wal-Marts" Wal-Mart, it just may help revitalize small towns.

Disclaimer: Harvard is in - and affects - a small town. But the above is my observation.