Last week, there was a fantastic piece on AdAge detailing how Wal-Mart’s famed “productivity loop” now appears to be working against them rather than with them as it once did. The general consensus? Wal-Mart may actually be dying at the hands of its own business model:

“The business model developed by Sam Walton in the 1960s to attract shoppers used low costs to lower prices. The more shoppers, the more efficient Walmart got, letting it lower prices further and attract even more shoppers. This is the famous “productivity loop,” and it’s pretty simple.

But it’s increasingly hard to pull off in the U.S., where Walmart’s namesake chain delivered its ninth consecutive quarter of declining same-store sales last quarter. Its prices have been rising relative to competition, as CEO Mike Duke acknowledged last week.”

Wal-Mart’s astronomical and speedy growth to its current hulkingly large hold on the average American consumer is due to that business model, but the problem is that it’s not sustainable in that same incarnation for the long term. Eventually, you run out of room to build more Wal-Marts (and where there IS room left, you get chased away by angry townsfolk weilding pitchforks and torches), and as store expansion declines, so do sales. That means you have to jack up your prices a little in order to remain in competition and keep your shareholders happy…but when your entire brand identity is wrapped up in having the lowest prices around, raising prices seems to entire defeat the purpose of your existence.

Consumers notice it when you raise your prices, even a little bit, particularly if you’ve succeeded in becoming the major, regular shopping stop for them. So once everyone realizes Wal-Mart’s prices aren’t the lowest, what’s the motivation to keep coming to the store? Why not go to Target, instead? If they can’t get prices back down to what they once were and still keep the shareholders happy, they’ll need another major hook to bring the shoppers back - it will be interesting to see if Wal-Mart is able to come up with some interesting gimmick to regain that lost attention.

You can read the entire article over at Ad Age – I recommend it as worth the look.