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Sunday, January 30, 2011

Wal*Mart is WalSmart

Last year, I wrote a post entitled “The Wal-Mart Conundrum”. It attempted to provide a balanced view of the world’s largest retailer (see Media Realism, May 26, 2010). The post generated a great deal of mail both pro and con. I promised to continue to monitor the retail powerhouse and that is what I will be reporting on in this entry.

A few years ago, William Marquard, a very solid business consultant, wrote a book entitled “Wal-Smart, What it Really Takes to Profit in a Wal*Mart World” (McGraw-Hill, 2007). It is an excellent book and I highly recommend it. He does cover some of the issues that Wal*Mart faces today and he does not duck the criticisms they often receive. What he does is paint the clearest picture that I have seen as to why they have been successful. He goes on to add that we now live in a Wal*Mart world and the secret to success for many companies is not to take Wal*Mart head on but rather to use their techniques to survive.

Boiling it down, he says it all comes down to what he calls “The Productivity Loop.” He describes it as follows: “The loop is an endless cycle—reduce costs, invest savings in lower prices, use lower prices to boost sales and generate higher profits to invest in reducing costs further”. When the loop is finished, Wal*Mart starts it all over again and he gives many good examples of the loop in action.

Wal*Mart staffers are relentless and continue to cut costs for shipping, communication, warehousing, handling, distribution, stocking, merchandising, labor schedules, and serving their customers. Their cutting edge work in RFID (Radio Frequency Identification) has slashed out of stocks and replacement costs.

Also, their corporate mantra is first to work out what NOT to do. Then they decide what to do and they try to solve problems one store at a time.

A big driver in their business is Everyday Low Pricing often called EDLP. Research has shown that it is the prime reason that people shop super-centers for groceries. EDLP allows them to run fewer ads (boo!), spend less on labor to change prices on shelves, less time on stock outs, and a great deal less time entering prices on company computers. This is especially important when you have 100,000 different products in a super-center.

Despite this, some consumers find EDLP boring so Wal*Mart still offers “rollbacks”. This helps blunt the “Hi-Lo Retailing” tactics that K-Mart, Albertson’s, Target (to a degree) and J.C. Penney use. These are simply gimmicks to generate store traffic such as big promotions, great sales, and lots of printed coupons.

By constantly going back to the productivity loop, Wal*Mart has changed the rules of the global economy. They have combined a new level of convenience, discount pricing, and above all, efficiency.

As we finally come out of this Great Recession (although terrific challenges lie ahead), we can learn a great deal from the Wal*Mart approach. Management at many firms still look to save almost exclusively by cutting people when times are tough and then are late to hire as things improve. I have never worked anywhere where waste was not dramatic in expenses, supplies, travel, or personal perks for senior staffers. Put the hammer down on expenses and you get the benefits normally associated with a nice spike in business. And, you can control it which is something that you cannot do with your customers!

Wal*Mart has its flaws to be sure. But, if we all acted Wal*Smart, our productivity would soar.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

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