A retailer’s biggest risk: To expand outside of retail

The author of 8 Essential Exchanges discusses why firms like Walmart are entering financial services and the strategy required

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Walmart becomes a bank

Some people might wonder why Walmart is getting into the banking business. After all, it’s already at the top of its game, so why mess with a recipe for success that’s working?

Walmart in the U.S. is teaming up with Green Dot, a prepaid credit card company, to offer chequing accounts. Not everyone is going to ditch their current financial provider and move all their funds to Walmart, but it could appeal to a certain segment of the population: Walmart is offering chequing accounts with no minimum account balance, and no fees for overdrafts or bounced cheques.

Sure, Walmart is turning a profit, but the behemoth retailer does face intense competition. Consider mobile payments, the omni-channel and the use of big data in retail, and we’re seeing a landscape changing faster than Kim Kardashian changes questionable outfits. A retailer at the top of its game can fall fast if it fails to innovate and adapt to changing times.

For companies sitting in a strong position, this could be one of the most difficult decisions they have to make, said Kevin Paul Scott, co-founder of ADDO Worldwide and author of the book, 8 Essential Exchanges. We all love stability, right?

To achieve their goals in the long term, Wal-Mart and other retailers have to sacrifice short-term stability for long-term significance. And that, says Scott, requires taking risks.

“(Walmart) is choosing to go into a place that has the potential to be detrimental (if customers don’t respond), but I believe is going to allow them to gain market share and allow them to serve their key constituency in a really unique way,” said Scott.

The need for innovation could mean moving from one sector (like retail) into another (like banking), and that could become more commonplace in the future. For Walmart, providing banking services could help to build greater brand loyalty, since a customer who banks there is probably more likely to spend their purchasing dollars there.

But this requires a rather hefty investment in infrastructure and technology. And it requires integration of systems and networks and customer data. It’s almost like an M&A, but one that takes place within the same organization. It might be wise to treat it like one.

Walmart, for example, has to invest in technology to accept and process payments. But there’s also a need to train front-line workers. Is a cashier now required to be a bank teller as well? If so, they need to know what they’re doing or the initiative could fall flat.

This isn’t to say all retailers will become bankers or move into other sectors. “My caution to retailers would be to only broaden your interests when it aligns with your core goal,” said Scott.

“When Amazon is talking about same-day delivery, that requires a lot of investment, but it aligns with their mission of being the best marketplace in the world,” he said. But getting into the smartphone business doesn’t make as much sense, strategically, for Amazon, he added, especially in a market that’s already saturated.

Expanding into another sector can be risky, so it has to be done right the first time — and that will require consolidation and integration of infrastructure (plus all the testing and training that comes along with it). One misstep, and potential customers will be less likely to take the leap of faith.

photo credit: Walmart Corporate via photopin cc

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