Retreat from Germany in 2006 Sluggish Growth in the US Market Clamour at Home: The Price of Becoming Big
Global Ambitions Re-thinking One-Size-Fits-All Approach Flexible Workforce
1
4. Wal-Marts Response
The Numbers: How Big is Big? IT: The Driver of the EDLP strategy Management Process Partnership with Suppliers Partnership with Employees Obsessive Focus on Costs
Wal-Mart: A Behemoth
1962 : Sam Walton launched his first store
Location : Bentonville, a backwater in Arkansas, a state where chickens outnumber people Today : Worlds Largest Retailer Four times as big as #2 Retailer, Carrefour
Focus of IT Investments:
Applications that directly enhanced its core value proposition EDLP and increase sales through micromerchandising
Dr. Lakshmi Mohan
Wal-Marts Fetishness About Secrecy - Sued Amazon for Stealing Its Computer Secrets
1997: Amazon Forced to Set Up Distribution Network Because Bertelsmann, the German media giant, went into a joint venture with Barnes & Noble, one of the two largest book store chains in the US, and launched an online book store to compete with Amazon AND Bertelsmann bought the largest book distributor in the US, who was Amazons Supplier Amazon Lacked Core Competence in Distribution Recruited 15 current employees of Wal-Mart and its vendors who had intimate knowledge of Wal-Marts computer systems behind the superefficient distribution system. Amazons Stand Were not interested in other peoples trade secrets. Were interested in hiring the brightest, hardest working, and most talented people wherever they might be. Wal-Marts Response Theres a lot of computer talent out there in the Valley. If youre coming to Bentonville, youre looking for something special.
Dr. Lakshmi Mohan
10
BUT ALL THAT DATA IS USELESS UNLESS IT IS USED Information is shared with its own Buyers AND Suppliers
* Wall Street Journal, Dec 3-4, 2005
Dr. Lakshmi Mohan
11
12
Value of the Data Warehouse - Suppliers Wal-Mart opened its data vault in January 1999 to its suppliers cements Wal-Marts power over them
Extranet built by Wal-Mart, Retail Link, allows suppliers to see how their products are selling in different stores and which ones need to be replenished. Vast and detailed data on sales and inventory exceeds what many manufacturers know about their own products.
They are very strict with their suppliers, but they give them the data they need.
Dr. Lakshmi Mohan
13
14
15
1999
148 Wal-Mart 181
Kmart
109
Kmart
133
Sears
87
Sears
118
16
17
Selling, General & Admin. Costs As a % of Sales 15.8% (19.4% in 1984) 19.0% 22.2% 24.4% 29.4% 33.3%
For Example:
Cross-training of employees allows them to function effectively in more than one department at a time.
Better training of cashiers and monitoring of utilization can increase productivity rates at checkout counters by 10% to 20%.
19
20
Wal-Mart gives them information at their finger-tips and the freedom to act. If someone asks me how we manage a $100 billion company, I tell them a store at a time, and we constantly challenge that unit to make it the best.
21
22
23
24
At our size today, theres all sorts of pressure to regiment and standardize and operate as a centrally driven chain.
Id hate to work at a place like that and I worry every single day about Wal-Mart becoming that way.
Nothing at all profound about any of our principles in fact, theyre all common sense. Most of them can be found in any number of books or articles on management theory.
But I think the way we have applied them at Wal-Mart has been just a little bit different.
Dr. Lakshmi Mohan
25
26
We let them see all the numbers so they know exactly how they are doing within the store and within the company. They know their costs, their markup, their overhead and profit margins. Its a big responsibility and a big opportunity. And, we give them incentives to want to win.
Dr. Lakshmi Mohan
27
28
Thats why we at Wal-Mart are fanatics about our managers and buyers getting off their chairs here in Bentonville, and getting out into those stores. We have 12 airplanes only one of them is a jet, Im proud to say in our hangars out at the Rogers, Arkansas, airport, and thats why they are there.
29
But the really valuable intelligence that surfaces in these sessions is what everybody has brought from the stores.
Dr. Lakshmi Mohan
30
31
Punctuality of deliveries Data-documented problems about meeting orders or returns of defective products by customers Suppliers not meeting sales targets would face tougher negotiations in the future from the steely Wal-Mart buyers. RFID Mandate to Top 100 Suppliers in 2003
Suppliers own each product until it is sold. Wal-Mart will never take those orders onto its books. Think of the impact of shedding $50B of inventory. The impact will probably be felt by suppliers, but none are likely to complain. Meta Group Retail Analyst
Dr. Lakshmi Mohan
32
Wal-Mart Lives in a World of Supply & Command, Instead of a World of Supply & Demand
An Example: Cross-Docking
Pre-assembled orders for individual stores from a suppliers truck go seamlessly from an unloading dock at Wal-Marts Distribution Center directly into a truck bound for stores Get goods into stores without even unpacking them let alone allowing them to sit in storage ! Until we reached a billion dollars, a lot of suppliers just ignored us way out here in the Arkansas Outback. Now, of course, were too big too ignore.
Dr. Lakshmi Mohan
33
Vendor-Financed Inventory !
How Cross-Docking Works
At Wal-Marts new distribution centers, P&Gs trucks are unloaded directly to trucks that will head for Wal-Mart Stores. The toothpaste is never even put on warehouse shelves. Once a truck is full, it heads to the stores. Products are put on the shelf within 4 hours, and are usually sold within 24 hours. Despite this tight delivery schedule, Wal-Mart has 10 days to pay P&G.
34
35
36
Today:
Wal-Mart: Largest Toy Retailer: 25% market share --- Toys R Us Share: 15% (2003 Sales: $11B) --- Value Proposition: One better than Toys R Us: Rock-Bottom PRICES
WAL-MART STRENGTHS:
--- Super-efficient supply chain --- Mass retailer, with a broad diverse array of products --- Can afford to use toys as a loss-leader (lose money on toy sales) to lure in customers who then purchase higher-margin goods - Toys R Us just doesnt have that luxury
Source: Wall Street Journal, August 31, 2004
Dr. Lakshmi Mohan
37
38
Sense & Respond Management Process of Wal-Mart : Why They are Unbeatable Disappointing sales on Friday, Nov 26, 2004 (the day after Thanksgiving), Traditionally the biggest shopping day of the year - Wal-Mart knows it literally at the end of the day Because of their state-of-the-art information system
39
2.
3. 4.
Source: www.fastcompany.com
40
Source: www.fastcompany.com
41
42
43
44
I visited with Abe a number of times at his New York office, and he was a very open guy. He shared with me how he used computers to control your merchandise.
Dr. Lakshmi Mohan
45
- How much merchandise is in the store? - What is selling? What is not? - What is to be ordered? Marked down? Key Metric: Inventory Turnover Ratio of Sales to Inventory Higher Inventory Turnover Less Working Capital
The man is a genius. He realized even at the rudimentary level he was on in 1966, operating those few stores that he had that he couldnt expand beyond that horizon unless he had the capability to capture this information on paper so that he could control his operations, no matter where they might be Gave him the ability to open many stores, and run them well, and be profitable.
Dr. Lakshmi Mohan
46
* Went public on Oct 1, 1970 100 shares in 1970 @ $16.50 Nine Two-For-One Stock Splits 51,200 shares in 1990 @ $62.50 Initial Investment of $1,650 in 1970 worth $3M in 1990
Dr. Lakshmi Mohan
47
48
I always questioned everything. It was important to me to make them think that may be the technology wasnt as good as they thought it was, or may be it wasnt the end-all they promised it would be.
Dr. Lakshmi Mohan
49
Growth of IT in Wal-Mart
1978: Bar Coding & SKU Inventory System
When Jack Shewmaker became our COO in 1978, he worked really hard at getting me to invest in more and better computer systems, so that we could track sales and inventories across the company, especially in-store transactions.
50
Weve spent almost $700 M building up the computer and satellite systems we have Im told its the largest Civilian database in the world even bigger than AT&Ts. None of that matters to me. What I like about it is the kind of information we can pull out of it on a moments notice.
Dr. Lakshmi Mohan
51
It makes it tough for a vendor to know more about how his product is doing in our stores than we do.
Weve always known that information gives you a certain power, but the degree to which we can retrieve it in our computer does give us the competitive advantage.
Dr. Lakshmi Mohan
52
We were simply two giant entities going our separate ways, oblivious to the excess costs created by this obsolete system.
Dr. Lakshmi Mohan
53
P&G could monitor Wal-Marts sales and inventory data, and then use that information to make its own production and shipping plans more efficiently. We broke new ground by using IT to manage our business together, instead of just to audit it.
Dr. Lakshmi Mohan
54
Satisfied, loyal, repeat customer are at the heart of Wal-Marts spectacular profit margins, and those customers are loyal to us because our associates treat them better than salespeople in other stores do.
Our relationships with the associates is a partnership in the truest sense. Its the only reason our company has been consistently able to outperform the competition and even our own expectations.
Dr. Lakshmi Mohan
55
I would love to tell you all that, but unfortunately none of it would be true!
In the beginning, I was so chintzy I really didnt pay my employees well. The managers were fine, but we really didnt do much for the clerks except pay them an hourly wage, and I guess that wage was as little as we could get by with at the time.
Dr. Lakshmi Mohan
56
AND, HERE IT IS: The more you share profits with your associates, whether its in salaries or incentives or bonuses or stock discounts the more profit will accrue to the company.
Dr. Lakshmi Mohan
57
The Idea for Sharing Profits & Benefits NOT From Me, But From Helen
We were on a trip, and we were talking about the high salary that Sam was earning, and about all the money and benefits that he was paying the officers of the company in order to keep his top people. He explained that the people in the store didnt get any of those benefits .
I think it was the first time I realized how little the company was doing for them. I suggested to him that, unless those people were on board, the top people might not last long either .
I remember it because he didnt really appreciate my point of view then. Later on, I knew he was thinking about it, and when he bought it, he really bought it. We didnt include our associates in the initial, managers-only profit sharing plan when we took the company public in 1970. There was nobody around preaching that philosophy in those days
In 1971, we corrected my big error of the year before, and started a profitsharing plan for all the associates Profit-sharing has been the carrot thats kept Wal-Mart headed forward.
Dr. Lakshmi Mohan
58
59
60
61
Every time Wal-Mart spends one dollar foolishly, it comes out of our customers pockets. Every time we save them a dollar, that puts us one more step ahead of the competition, which is where we always plan to be. Sam Walton Fifteen years after his death, frugality is still ingrained in Wal-Marts culture.
62
If American management is going to say to their workers that were all in this together, theyre going to have to stop this foolishness of paying themselves $3M and $4M bonuses every year and riding around everywhere in limos and corporate jets like theyre so much better than everybody else.
Dr. Lakshmi Mohan
63
64
If youre not serving the customer, or supporting the folks who do, we dont need you.
Dr. Lakshmi Mohan
65
66
It is clearly a very challenging market for us that we have not figured out. Wal-Mart CEO, April 2006
Dr. Lakshmi Mohan
67
Underpriced Wal-Mart
Sell a limited selection in each store 850 to 1,000 items vs. 100,000 at Wal-Mart Stock mainly their own brands 80% of German consumers are 20 minutes from an Aldi
Aldi has invaded Wal-Marts home turf opened more than 700 stores in the U.S.
Source: Asian Wall Street Journal, July 31, 2006
Dr. Lakshmi Mohan
68
69
Challenge of adapting its global strengths to the different cultural expectations of its Japanese customers
70
Challenges in Japan
Low-cost format is not established in the market Will Japanese consumers respond to its efforts to turn Seiyu, a conventional Japanese department store, into something closer to its discount store model?
Source: The Financial Times, July 29-30, 2006
Dr. Lakshmi Mohan
71
Cant rely solely on building hundreds of new stores each year to perpetuate growth Must find ways to generate more sales at existing US stores
72
Source: Wall Street Journal, Sept 7, 2006 & Economic Times, Aug 15, 2006
Dr. Lakshmi Mohan
73
74
Impact of Lawsuits
Sam Walton believed that there were only two types of employees he wouldnt give a second chance to those who abused people and those who stole We have 1.5 million employees, including every kind of person known to man racists, sexists, etc. If someone made a negative racial comment in the past, instead of dealing with it severely, we might have transferred him. In todays world, he has to go. The number of people not doing the right thing is a small %. But it is unfair when that number is seen as representative of a wider institutional pattern.
Source: Wall Street Journal, Oct 6, 2004
Dr. Lakshmi Mohan
75
CEO is also getting out more, meeting with investors, community groups and the media
Playing the role of the Companys public defender and explainer To avoid future growth being constrained by political barriers, Wal-Mart will have to raise its head from Bentonville, and worry more about how it is perceived
Dr. Lakshmi Mohan
76
77
78
To benefit your customers, you drive down prices as low as possible. But doesnt that encourage manufacturers to move jobs overseas, which puts some of your customers out of work, so they cant afford to buy as much at Wal-Mart. Isnt that a vicious circle and does that really benefit America ?
CEOs Response:
We have a history of working with companies like P&G, Kellogg, PepsiCo to drive out unnecessary costs inventory buildup, packaging expenses from the business and pass the savings onto the customer. Say we do business with a certain manufacturer and give them all the shelf space for their products. And other retailers are sourcing a similar item overseas and offering greater value. Ultimately, the customer will make the decision. Manufacturers are putting themselves at risk.
Dr. Lakshmi Mohan
79
81
By offering customers all the same things, you end up under-serving everyone because you dont have an offering that is specific to that customer segment. CEO of U.S. stores and architect of the new approach. Huge shift for a Company that grew on the strength of standardization
82
Address Specific Customer Segments With a Precison That Better Meets Their Needs & Wants Segmentation of U.S. Market based on ethnicity and lifestyle in addition to income
83
84
This Wal-Mart has stuff for all your needs - the right music, make up, baby things.
A 19-year-old African-American shopper, who is holding a friends baby.
Source: Wall Street Journal, Sept 7, 2006
Dr. Lakshmi Mohan
85
86
First Venture Into Interactive Consumer-Generated Advertising - To Reach Out to Fashion-Conscious Youth Consumers
We are just scratching the surface. Instead of a small number of ad agency executives creating the best ads, millions of people will be contributing to creating the best ads a huge change that will really enhance brand advertising.
Chief Executive of ViTrue, which provides marketers with the technology to create interactive advertising.
Dr. Lakshmi Mohan
88
Will It Work ?
Piloted in 39 Stores Roll-out to All U.S. Locations by end-2007
Our surveys indicate that customers had a better shopping experience. Affects 1M workers
But, when youre the biggest player on the block, everything you do will draw reaction.
Dr. Lakshmi Mohan
Never underestimate them. They foster an image as country hicks. It makes the kill more of a surprise. A Retail Analyst Certainly, Wal-Mart has made mistakes, but it has also got more things right than its rivals, who mistake its small-town simplicity for naivety at their peril. Just because we are simple doesnt mean we are unintelligent. Wal-Mart CEO
Source: The Economist, Dec 6, 2001
Dr. Lakshmi Mohan
90