Cultivating more consumers who buy more, more often, & tell their friends!
Walmart recently announced a new CEO, Doug McMillon - a long time insider. Leadership changes are prime opportunities for corporate introspection and reassessment. Is the company heading toward its highest and best strategic aspiration? Is it on an optimal path to get there? Is the current direction consistent with the new leadership’s vision and capabilities. Etc.
The Walton family, via Walmart, has created historic wealth by becoming the beacon for low price retailing. This approach has been nothing less than spectacular. With a market capitalization of $240 billion, there are only five or six companies in the entire world worth more. That said, McMillon has the obligation to ensure that the company is on the right path and that he will appropriately build on the foundation of his predecessors.
As such, it is important to note that selling products via big box retail stores is, most likely, merely a strategy to maximize shareholder value. Offering consistently low prices is their primary tactic. Companies must never become overly or romantically attached to business models - strategies, tactics, products, marketing campaigns etc. They should be embraced only for so long as they serve the company.
For example, even though they created the digital camera, Kodak was too attached to film to see the consumer groundswell toward digital photography and now their consumer photography business is dead. Up until the early 1980’s, Converse was the leading athletic shoe maker and had Michael Jordan, Magic Johnson, and Larry Bird marketing their products. They were too attached to their 19th century business model to embrace the shift to leather shoes, Asian sourcing, and more aggressive branding. As a result, they are now a mere shadow of their potential and relegated to a dramatically smaller, non athletic lifestyle positioning outside of sports. Microsoft seems to be in a similar identity crisis. Because of their heritage in desktop software, they were late to embrace the impact of the internet and seem to be struggling to figure out a vision for their future.
It seems that a confluence of factors could have Walmart in a similarly compromised position in the near future. Walmart is all over both traditional and social media lately because of their practice of minimizing wages and benefits for its workers. As the memes go, Walmart pays such low salaries that many of its employees are forced to rely upon government programs like food stamps and welfare to make ends meet. This has the effect of Walmart consumers and other taxpayers subsidizing the company’s employment costs. There is a growing crescendo of websites, videos, blogs, posts, and tweets protesting the company’s approach. Many see an enormous conflict between the wealth of the Walton family - at close to $150 billion, the richest family in the world and equivalent to the wealth of the bottom 42% of all Americans combined - and the low wages and benefits that they pay their employees (an average of $8.87 an hour).
To be fair, Walmart has executed their original mission brilliantly. That business model manages all aspects of the value chain to solve for low retail prices. They have become the largest retailer in the world as a result. That said, it’s not guaranteed that this will be the best business model for them forever. As times change, reliance on legacy business models can be, as we’ve seen, a prescription for sub-par performance.
Sometimes consultants are hired to reinforce the status quo at a company. Other times, they are brought in to challenge things in the best interests of the business. Here's what I'd tell the new Walmart CEO if I got the chance to advise him on how to maximize long term shareholder value:
1. Get out of the lowest price game to create a path to sustained long term growth. Walmart is no longer exclusively winning the low price war. Dollar stores, deep discounters and grocery retailers now regularly offer lower prices. Consumers know this.
Moreover, the current business model almost solely fixated on low retail price seems unsustainable in the long term because of its toxic by-products. Walmart is, one way or another, behind immoral human rights practices at manufacturing companies forced to cut all manner of corners to get the prices that the retailer demands. Beyond that, it is meaningfully responsible for the enormous outsourcing of American jobs from U.S. companies forced to manufacture abroad to stay competitive. If we're honest, while this has allowed Walmart to get the prices it wants, it has harmed untold American families and communities. The public is increasingly both aware of Walmart's role in these activities and unwilling to support them.
It is critically important to understand that all of this occurs in a world where information is increasingly available and where consumers have enormous, global platforms to express their opinions. We’ve seen governments topple under the pressure of social media inspired activism. Does anyone seriously believe that companies are immune from this?
There may not yet be a consumer quorum of negative sentiment about Walmart, but without directly and thoughtfully addressing the issue it seems hard to fathom how it will simply disappear on its own. It is also hard to see how company performance could be inoculated from this growing pressure. A proactive and preventative approach would seem critical to protect shareholder value. More important to the new CEO and the future, an aggressive repositioning of the brand and some of its operations can actually enhance value going forward.
2. Build the Walmart brand to grow margins. Articulate a unique selling proposition about the brand and the overall shopping experience that offers a compelling rationale - beyond price - for consumers to shop there. Enhance the shopping experience: invest a bit in the retail environment and on in-store customer support. Make the stores nicer, warmer, and more inviting places to shop. As the value proposition expands, the reliance upon price is lessened and margins can be raised.
3. Increase wages to increase revenue. It is well established that employees cannot do their best in serving customers unless they are being appropriately “cared for” by their employer. Raise wages to better position Walmart employees to enhance the value proposition and shopping experience for Walmart shoppers that will support higher margin products and greater profitability. Walmart doesn’t have to deliver Ritz Carlton levels of service, but in an increasingly competitive marketplace it is simply strategic to business growth to give consumers as much reason to shop your stores as you can.
4. Source locally to create more consumers who buy more. Ultimate profitability will be greater when considering the multiplier effect of local dollars earned and spent within a local economy. At 2.2 million employees, Walmart is the largest employer in the United States (the biggest in 25 states) and among the top two in the world. When you consider the network of companies, suppliers, vendors, and shipping resources involved in getting products on the shelf, the more manufacturing and sourcing from within the United States, the greater the employment within this country and the greater the consumption here. Along with other efforts to build the brand, local sourcing can be a corporate 'stimulus package' for the company.
5. Being a good corporate citizen is just good business; it builds the Walmart brand, and supports the growth in shareholder value. In a world where information is increasingly available and where word of mouth - every year, every month, every day - is an increasingly powerful driver of brand equity, consumption, and profitability - a company as big and resource rich as Walmart should look to better manage this aspect of their business. If done well, it has no choice but to support greater revenue and shareholder value. Can you imagine the impact on the business of just a little bit of the Whole Foods patina on Walmart?
One of the new CEO’s claims to fame within the company is that he worked directly for Walmart founder Sam Walton. While this, no doubt, confers considerable internal bona fides - it is important that this fact be leveraged in strategic service to the company’s future. With increasing anti-Walmart sentiment in the public, soft same store sales versus last year, and no growth projected for this holiday season, perhaps the business case for embracing a different approach is becoming increasingly manifest. Having counseled a number of family owned companies, I can only imagine that the pressure from the Walton family to McMillon to simply "not screw it up" will be immense!
Building the Walmart brand - offering consumers a more nuanced and compelling value proposition beyond price - is the most logical and strategic way to position the company for the 21st century and to build on the enormous foundation that Sam Walton built. It will be very interesting to see what Mr. McMillon does . . . and how the public responds. Those of us who care about the company and/or the country wish him well.