LETTERS FROM THE GLOBAL PROVINCE

GP 14 March 2007: Up against the Wall

Ignorance or Apathy.  “Retailers experienced a sales chill in February, adding to worries that a cooling economy will hurt consumer spending in the coming months” (Wall Street Journal, March 9, 2007, p. A10).  Costco, Target, and Dollar General showed comparable store increases of 4 to 5%, but Wal-Mart lagged badly at 0.9%. 

That’s a worry.  Wal-Mart occupies a place in our economy equivalent to the Federal Reserve.  But we’re pretty sure if you were asked whether its continuing troubles spring from ignorance or apathy that you would reply, “I don’t know, and I don’t care.”  Curiously the nation does not care about Wal-Mart, even if it is at the heart of our American cosmos.  For what it’s worth, we suspect that its woes stem from more than a soupcon of both—the ignorance of management, and the apathy of de-motivated employees. 

Splattered Tomatoes.  Should you go into its Sam’s warehouse unit at the moment, you could pick up some reasonably tasty cherry tomatoes packed in Florida at a good price.  You’ll lose one or two as the lid springs open.  “Six” somebody or other has packaged them as ‘cherry bells’ in a chintzy plastic container, ill-suited to carry anything.  Several more will come out in the trunk of your car, and, despite your best efforts, a couple more will trickle down to the ground at home and get squashed in the process. 

The flimsy container does not lend aid and comfort to Wal-Mart’s critics who attribute all the company’s flaws to management’s unfeeling arrogance or to its cheerleaders who take it to be a brilliantly run business empire that has single-handedly put the brakes on inflation in the United States.  It is not evidence of either virtue or vice.  Rather, the lousy container would not cost any more if it were made right: its fragility is simply the handiwork of poor middle managers at both Wal-Mart and the supplier.  It’s due to a failure to execute properly—stemming from both ignorance and apathy.  When you strip off the Wal-Mart Emperor’s New Clothes, he simply looks incompetent. 

Dear Mr. Scott.  Should we converse with Mr. Lee Scott, the Emperor of Walmartia, anytime soon we will advise him that he is dying of a 1,000 small cuts—little things like his errant tomato packages.  At most centers, Häagen Dazs, Evian, and Stella Artois have disappeared from the shelves: slightly upscale brands do not last long with Wal-Mart’s purchasing group.  Merchandise is fiendishly hard to find, even if one asks a clerk.  Stack-ups occur at the gas station, since there are not enough lanes for cars with gas tanks on the right side.  Check outs can take 8 and sometimes 10 minutes.  A host of very little things eats away the fabric of the place at the margins. 

The Bigger They Are, the Harder They Fall.  Wal-Mart, of course, is not the only giant that’s having a horrible time adjusting to the new global playing field.  Citicorp is faltering and has been put on notice, we hear, by its large Saudi investor.  GM keeps digging a deeper and deeper hole for itself.  If you talk to your auto mechanic (as we have), you will discover he is not eager to repair your Chevy or your Cadillac, both poorly engineered vehicles.  Pfizer, formerly a drug powerhouse, is not getting much oil out of its research pipeline, and has not spotted another competitor to swallow, Warner Lambert’s Lipitor having saved its fat during a prior raid.  Floundering Home Depot has just sacked the wunderkind it brought in from General Electric.  Carrefour, in France, the second-largest retailer in the world after Wal-Mart, is stumbling and has just thrown out its chairman.  Sundry vulture private equity capital interests are hovering over its carcass, as they figure out how to cash in on its real estate assets. All these companies, of course, are suffering from strategic errors, but, as well, they are executing the smallest things badly.  Turning them around involves a top to bottom shakeup, much more comprehensive than financial engineers, strategy gurus, or operations managers can envision. 

Going Abroad.  In a rather silly column in the Wall Street Journal (March 8, 2007, p. C16), Breakingviews.com, an online financial commentary site, advises Wal-Mart to stop adding stores in the United States and to do more abroad.  Despite its successes, Wal-Mart has bloodied its nose on several occasions abroad.  Most recently it has ditched Germany.  Of course, it should grow ever more global, but first it must make itself over, or it will just fail in many more places.  Wal-Mart does not just need a new strategy: it needs a new everything.  Simply going overseas will not do the trick.  It is so vast that it needs to be reshaped to deal with every nook and cranny on the globe, even if it’s hard to put together enough of a world view in Bentonville, Arkansas 72716.  In our Watching Wal-Mart section on the Global Province, we have not detected any real break with the way it was—a company where true marketing has always gotten short shrift. 

Analytics.  The question is how you get your arms around an enterprise out of control that is exponentially bigger than any of its competitors.  The numbers are so vast.  It’s very, very hard to manage the small stuff (i.e., a million here, a million there) when you are trying to keep your eye on billions.  What will work for Target won’t necessarily work for Wal-Mart.  To some degree, you can get at the nuts and bolts by uncovering microtrends in your business.  Thomas H. Davenport’s useful Competing on Analytics describes the numerous ways companies are now using the flood of data their activities generate to make all sorts of enterprise decisions.  Virtually any large American enterprise of note is assembling data and using algorithms and the like to mine insights out of all the bits of information. Wal-Mart is one of them.  We expect, as time goes by, that governments will be using similar techniques to try to gain ground on terrorism, disease epidemics, global warming and the like.  A lot of data and a little math can give us some useful snapshots to manage our lives.  But management must gather and analyze data that looks at the right problems.  Often large enterprises don’t know what they should be looking for.  We might suspect that several mega-sized companies have all the answers to the wrong problems. 

Merchandising.  Math aside, you have to have a feel for what people want and aren’t getting.  A package that will stay closed.  A dishwasher and other appliances that are not designed to wear out in 5 years.  A warehouse store that is not so innately uncomfortable.  Books and movies that don’t come out of the pulp machine.  Formulaic approaches to a diverse world conjured up in an ungainly headquarters in Bentonville probably will not get the job done. 

Chances are that Wal-Mart will revitalize itself one store at a time—one product at a time.  To do this, it will have to create vastly more sophisticated store managers who have the authority to violate company norms and to build more organic relationships with the communities in which they reside.  Stores that are very close to each other will be encouraged to develop very different personalities so that they don’t cannibalize sales from one another. 

VPIs.  A very curious article about Wal-Mart, most revealing, appeared last week.  Titled “Wal-Mart Execs Amuse Themselves Playing Favorites,” Wall Street Journal, March 7, 2007, pp. A1 and A14, it shows how Wal-Mart’s brass get to embrace products as their personal VPIs ( Value Producing Items) and then to try various tricks to pump up Wal-Mart’s sales of them.  Sam Walton, for instance, pushed Moon Pies.  Chairman Lee Scott has crusaded for All Small and Mighty laundry detergent, since it is a green product, and turned it into a $100 million product for Wal-Mart the first year on the shelves.  Cheerios, Special K, Bud Light 20 packs, WD-40, and sundry Nabisco products have also gotten VPI status at Wal-Mart, one time or another. 

We will not be surprised if their product choices make you yawn, “Ho-Hum.”  Forward-looking executives should not be up to such small potatoes.  We’d like to see Wal-Mart push VIPs—Very Important Products.  Products that really help consumer pocketbooks, or health, or the environment.  Or products that are just terribly good, such as the economy metal shelving that is for sale at a number of stores.  It will be hard for Wal-Mart to form tight bonds with its customers until it can let go of the mediocre.  That was something another great general merchandiser, Sears Roebuck, once understood.  It fathered some value products that mattered.  Now, of course, it’s just Sears. 

P.S.  Wal-Mart is way ahead of the second-guessers, and it is already making a big push in developing countries such as China and India where it feels it brings a lot to the party. This orientation hearkens back to its roots in the rural South and Southwest.  It has been hugely successful in Mexico, as recounted in “In Mexico, Wal-Mart is Defying Its Critics,” Wall Street Journal, March 5, 2007, pp. A1 and A14.  Its Mexican subsidiary is the largest private employer in Mexico, and the biggest retailer in Latin America. Eduardo Castro-Wright, a driver of its success, has now been brought into the U.S. to turn around the sluggish parent organization.  It has grabbed 44.8% of supermarket sales in Mexico, taking share away from virtually all of its substantial competitors.  A boon for the poor, it nonetheless has eaten the lunch of many modest retailers that don’t have its purchasing power, putting pressure on many of Mexico’s middle class citizen entrepreneurs.  This is a core problem for the company—figuring out how to become more of a friend of the middle classes to whom it offers little. 

P.P.S.  Search engines, which we discussed in “In Search of Searchlights,” can find the esoteric, but they have a hard time burrowing down into the useful particular.  That is, “Search tools are brilliant at finding the obscure and the global … but in a test of major search companies’ local services, all” come “up short” (Wall Street Journal, March 10-11, 2007, p. A5 citation of Stephen Wildstrom of Business Week).  “The main reason local search does so poorly is that the tools that are used to scour the Web are based on keywords and sites’ popularity.”  Analytics present the same problems: they don’t deal with one-of-a-kinds very well.  For a Wal-Mart or other large companies, this is a problem when markets become more complex and differentiated, demanding more hands-on local management and on-the-spot personal computer analysis. 

Back to Top of Page

Return to the Index of Letters from the Global Province

Home - About This Site - Contact Us

Copyright 2007 GlobalProvince.com