Executive Summary
In this article, the authors examine the effect of Wal-Mart’s entry into the United Kingdom on the performance of European retailers. The focal measure of performance is shareholder value, which has recently been recognized as an important metric for evaluating the effect of marketing actions, but the findings are validated using alternative performance metrics. The authors test the hypotheses on nearly 100 European retailers.
The findings provide broad support for the relevance of distinguishing between the seriousness of a threat to an incumbent and the incumbent’s capacity to withstand the threat. The authors find that the expected performance of incumbents is negatively affected by the degree of overlap with Wal-Mart in assortment, positioning, and country of entry. Overlap in country of entry amplifies the negative implications of overlap in positioning. Moreover, they find that the incumbent’s capacity to withstand the threat matters as well. Small, less profitable, and financially highly leveraged firms are much more negatively affected than firms with stronger financial resources. In addition to the financial capacity, the organizational capacity to withstand the threat plays an important role. Retailers that have built organizational experience in countries with a strong price focus, in competitive countries, and in international markets are less negatively affected than retailers that have not built up these experiences. Finally, development of a competitive repertoire based on direct competition with the entrant (Wal-Mart) in other countries also plays a significant, positive role.
On the basis of these results, the authors suggest that incumbent retailers can employ proactive strategies when faced with the prospect of the possible entry of a much larger competitor, such as Wal-Mart. For example, to contain the seriousness of the threat, an incumbent retailer using everyday low prices may consider moving to a hi–lo strategy to render direct price comparisons with Wal-Mart more difficult. Incumbent retailers might also reduce the overlap in assortment with Wal-Mart by focusing on niches that Wal-Mart does not cover. The overlap in assortment can be reduced by carrying exclusive, specialized, niche, or service-augmented products that are difficult to reconcile with the big-box retailing formula that drives Wal-Mart’s success. A possibility is upscale manufacturer brands that do not want to be sold at Wal-Mart for fear of damaging their brand image. Another option is the retailer’s own line of premium store brands or exclusive items. Equally important, retailers should hone organizational learning skills. Rather than avoiding difficult markets—competitive countries with a strong price focus—an incumbent may acquire these skills by operating in countries that prove to be highly valuable when confronted with Wal-Mart. International expansion also helps. From a financial point of view, it stabilizes cash flows in that the retailer is less dependent on one market. Withdrawing to a retailer’s own home country bastion is not a realistic option in today’s globalizing world. Finally, it helps if the retailer develops Wal-Mart-specific competitive repertoires by competing with Wal-Mart in other countries. The important role of organizational learning in company performance reveals that both large and small retailers have a chance to prosper after a massive competitor enters the market: the former by virtue of their financial resources and the right organizational competencies and the latter by having acquired the right organizational competencies. Thus, when an incumbent retailer is faced with the possibility of entry by a much larger competitor, there are several proactive actions it can take to prepare for this eventuality.
Biography
Katrijn Gielens (PhD, Catholic University Leuven) is Associate Professor in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. She has published in International Journal of Research in Marketing, Journal of Consumer Research, and Journal of Marketing. Her primary research interest is in the area of retailing and product innovations.
Linda M. Van de Gucht (PhD, University of South Carolina) is Professor of Finance at Catholic University Leuven. She has published in Journal of Financial Economics, Journal of Banking and Finance, European Financial Management, Journal of Empirical Finance, Strategic Management Journal, Management Science, and Review of Economics and Statistics, among others. Her primary research interest is corporate finance.
Jan-Benedict E.M. Steenkamp is C. Knox Massey Professor of Marketing and Marketing Area Chair in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. He has published in International Journal of Research in Marketing, Journal of Consumer Research, Journal of Marketing, Journal of Marketing Research, and Marketing Science, among others, and serves on the editorial boards of each of these journals. He is also past editor of International Journal of Research in Marketing. He won the Hendrik Muller lifetime award for the social and behavioral sciences awarded by the Royal Netherlands Academy of Sciences. He has also received the Society for Marketing Advances Distinguished Marketing Scholar lifetime award; the O’Dell, Little, Bass, and International Journal of Research in Marketing best-article awards; and the Americam Marketing Association Global Marketing Special Interest Groupr Excellence in Research Award. Other articles were finalists for the Little, Green (twice), and International Journal of Research in Marketing best-article awards. His research focuses on global marketing, the effectiveness of marketing instruments, interorganizational relationships, and marketing research techniques.
Marnik G. Dekimpe (PhD, University of California, Los Angeles) is Research Professor of Marketing at Tilburg University and Professor of Marketing at the Catholic University Leuven. He has published in Marketing Science, Management Science, Journal of Marketing Research, Journal of Marketing, International Journal of Research in Marketing, and Journal of Econometrics, among others. He won best-paper awards in Marketing Science (1995, 2001), Journal of Marketing Research (1999), International Journal of Research in Marketing (1997, 2001, 2002), and Technological Forecasting and Social Change (2000). He serves on the editorial board of Marketing Science, Journal of Marketing, Journal of Marketing Research, International Journal of Research in Marketing, Journal of the Academy of Marketing Science, and Journal of Interactive Marketing. His current research interests focus on the impact of product-harm crises, the internationalization of retail firms, and the growth of private labels.
J Marketing Research, Volume 45, Number 5, October 2008
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