Failure to change can be fatal, even for industry leaders

A good percentage of the articles appearing in this magazine over the past year revolve around one theme: manufacturers' need to continually adapt to change. That's because we are in an era in which any company that stands still—no matter how robust sales may be—is destined to die.

08/01/2006


A good percentage of the articles appearing in this magazine over the past year revolve around one theme: manufacturers' need to continually adapt to change.

That's because we are in an era in which any company that stands still—no matter how robust sales may be—is destined to die. If you disagree, there's a chance you haven't heard the latest on Wal-Mart and Dell.

These two companies are widely recognized for ascending to dominant positions in their respective markets because of their innovative supply chain strategies. While both remain profitable, the ground beneath their thrones is shifting ever so slightly.

Dell, the PC maker that perfected the direct-to-customer e-commerce sales model, saw U.S. sales grow roughly 6 percent in the second quarter of this year—just about matching the growth rate for the overall U.S. PC market. But a seemingly reenergized Hewlett-Packard, under new CEO Mark Hurd, experienced a 15-percent surge in U.S. PC sales during the second quarter.

Even more troubling for Dell are analysts' contentions that Dell is not poised to perform well in the sector of the PC market that's growing fastest: that is, the consumer side of the business. Dell's forte is keeping inventories low by requiring suppliers to hold parts until real orders trigger signals for parts to be delivered to Dell plants, where PCs are quickly assembled and shipped directly to customers.

This model has allowed Dell to undercut most competitors' prices, making Dell the darling of corporate buyers who typically must choose the lowest-cost supplier. Consumers, on the other hand, generally like to see and feel a PC—maybe ask a salesperson a couple of questions—before buying. That requires walking into a retail store, where in most cases they will find at least a couple of HP machines on display, but none from Dell.

Wal-Mart's business strategy also is based on being the low-price leader. Recently, however, Wal-Mart's closest rival, Target Corp., has been posting higher sales. This past June, Target's same-store sales rose 4.8 percent compared with the same month last year, while Wal-Mart saw a mere 1.2-percent increase for that month.

Wal-Mart rebounded slightly in July with a 2.4-percent sales gain, but Target, which hadn't reported actual numbers at the time this issue went to press, was predicting a gain of at least 3 percent.

Wal-Mart attributes tepid sales growth to soaring gas prices and rising interest rates that are straining consumers' budgets. It's telling, however, that Target, which typically has slightly higher prices than Wal-Mart, is showing stronger growth. It's also interesting to note that Wal-Mart has launched a plan to upgrade flooring, widen aisles, and add nicer restrooms in nearly half of its 3,900 U.S. stores. Analysts believe this is an attempt to attract more affluent customers, who when they shop at discount stores tend to prefer Target, where these small amenities already exist.

Dell also is making changes: It has introduced a high-end line of PCs and notebooks, the XPS, aimed at PC gamers, and announced plans to open retail stores in New York and Dallas.

No one is suggesting that either Dell or Wal-Mart is about to go under. But I think it's fair to say that these recent trends suggest that, in today's economy, all companies must constantly think of ways to reinvent themselves.





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