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Will the Internet Wal-Mart Wal-Mart?

by Scott Bradner

Mayors of small towns shudder whenever a 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 the small mom & pop stores that they will go out of business and the downtown 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 & pop stores but I guess the change is what is known as progress.

Now along comes the Internet and phenomena such as that may threaten the superstores. Not just Wal-Mart but any one of a host of targeted superstores including music (used to be called record) stores and office supply stores. Fortune magazine dedicates much of its November 8th 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 startups 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 is the one that I find to be very hard for the superstores to figure a way out of. How can Wal-Mart create a major presence on the web without cannibalizing their "brick & mortar" real-world stores? They could do what Office Depot has done and not price their merchandise lower on the web than in the physical stores but that leaves a big door open for competitors to undercut them. This is not an issue for the big catalogue firms such as Land's End and MacWarehouse who can just treat the web as an alternate to their existing phone bank with no cannibalization worry.

The problem is just as hard 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 effects, a small town but the above is my observation.