Why you will never win competing on low prices: Wal-Mart. From a profile in Fortune, which just named Wal-Mart the most admired company in America:

It means, for one, that Wal-Mart is not just Disney's biggest customer but also Procter & Gamble's and Kraft's and Revlon's and Gillette's and Campbell Soup's and RJR's and on down the list of America's famous branded manufacturers. It means, further, that the nation's biggest seller of DVDs is also its biggest seller of groceries, toys, guns, diamonds, CDs, apparel, dog food, detergent, jewelry, sporting goods, videogames, socks, bedding, and toothpaste--not to mention its biggest film developer, optician, private truck-fleet operator, energy consumer, and real estate developer. It means, finally, that the real market clout in many industries no longer resides in Hollywood or Cincinnati or New York City, but in the hills of northwestern Arkansas...

Wal-Mart's zero-to-60 engine is driven by three powerful cylinders: scale, scope, and speed. The scale part is obvious. The scope part allows Wal-Mart to "flex" its toy section before the holidays and collapse it afterward, while Toys "R" Us is stuck selling toys year-round. (Scope also lets Wal-Mart use entire categories--gas, soft drinks, whatever--as loss leaders to pull people into the stores.) The speed part may be the most intimidating. Wal-Mart's turnover is so rapid that 70% of its merchandise is rung up at the register before the company has paid for it.

There is just no way most retailers could ever hope to match Wal-Mart's ability to offer lower prices. So the only option is to compete on better service and better merchandise. Even that, may be getting harder:

"As Wal-Mart grows," writes consultant Ira Kalish of Retail Forward, "it will transform its competitors, its suppliers, and the industries it dominates." In apparel, for instance, Wal-Mart is moving from staples into cheap-chic fashion, exemplified by its new George line, which offers career basics like skirts and blazers priced between $8.87 and $28.96. That in turn is pressuring everyone from Bloomingdale's to Banana Republic to compete on price as well as image. "Wal-Mart has caused the fashion industry to go topsy-turvy," says Marshal Cohen, co-president of NPDfashionworld.

Wal-Mart is the 800 pound gorrilla in the room that cannot be ignored? What's your strategy for surviving in a Wal-Mart world?