The Walmart Paradox

Seth Godin talks about the WalMart effect for retailers. I worked for a company that sold to Walmart, heck they were about 35% of the business. The only problem for the manufacturer is that WM is tough as heck on them. If they come out with something new and innovative, WalMart will insist it be included in the planogram, or else.

With Walmart it is always, or else.  

Getting what we deserve?

The New York Times > Business > More Gloom on the Island of Lost Toy Makers points out that the toy business is crumbling. The reason: all the stores that love to sell toys are disappearing, defeated by WalMart.

Walmart wants to sell classics and heavily advertised hits. And they want to do it at close to cost. This appears to be good for consumers–get a Barbie for $12 or whatever.

The problem is that NEW toys aren’t classics and it’s hard to make the bet that new toys should be heavily advertised.

The second problem is that once you reach the level of success of a classic, selling at cost is no fun at all.

The end result is that the toy guys don’t have the guts to launch the new and the remarkable. They are boxed in, encouraged by Wall Street and management to play the Walmart game, which leads to short-term revenue and long term destitution.

These toy companies have always needed the profit from their hits to fund their next generation.

So what’s the answer?

The answer is to tell Walmart to go away. Toy companies are beginning to discover that they can’t win this game. The answer is to find a new and better and more consistently profitable way to launch the remarkable stuff.

And that’s happening. It’s happening when they sell online, or through local stores, or directly to people who care. No, this isn’t mass. This isn’t a fraction of what an endcap at Toys R Us was worth. It’s still the best deal in town. Over time, consumers will be trained that the toys they need are only available in places that aren’t Walmart.

Obviously, I think this same mantra applies to plenty of products in a similar situation. And I expect that the realists among you will tell me to get a clue, that Walmart is the market and you need to play or be irrelevant. I’m saying that playing is making you irrelevant.

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