Strategy and Operations

Walmart: A $500B Lawn Dart Desperately Seeking a Patch of Grass

A lot of people have begun to sing Walmart’s praises. I’m not one of them. In fact, Walmart is a company I have an increasing amount of disdain for. In fact, I would liken Walmart to a gigantic lawn dart desperately seeking a patch of grass. Granted Walmart’s U.S. stores’ business is improving. Good for them, but know that this comes on the heels of over a decade of mediocre performance caused by mediocre management. Sloppy, dirty, poorly assorted and poorly stocked stores driven to less than stellar performance by management, mostly focused on cost containment that took a terrible toll on topline sales and brand equity. Good for current management’s efforts to right the ship. But mediocrity and careless decision making is still present at Walmart.

Investment in the Global Sector

Globalizing for a retailer is easier said than done. It has certainly been easier for mono brands than for general merchandisers. Walmart failed in Brazil. They have failed in the UK. They failed in Germany. They failed in Korea. They have struggled in Japan. Granted, they do a lot of business in China but most of that business is in locally sourced food not general merchandise.

They have done okay in Chile and the combined Walmart Mexico/Central America does well albeit on the heels of a still unresolved $50 million bribery scandal involving their stores’ expansion in Mexico. They have done very well in Canada, but this also is on the heels of a long-running train wreck at competing Zellers, the incomprehensible failure of Target and the unwarranted disappearance of Sears Canada.

Could it be that there is a fundamental disconnect between Bentonville Arkansas and the rest of the world? And yet, they’ve just spent $16.7 billion to acquire a significant stake in India’s rapidly growing but significantly unprofitable FlipKart e-commerce business. This, in a country where Walmart has a mere 21 stores.

There are some retail exceptions to Walmart’s seemingly consistent global failures however. Costco, for example, is a global powerhouse. Apple, albeit a mono brand, is a global powerhouse. And Amazon is fast becoming a global powerhouse. Amazon may have been motivated to invest in FlipKart to co-opt that company’s growth and enhance its own opportunity for future Indian expansion. But now they may very well be celebrating Walmart’s success in bidding against them. Why? Simply because Walmart has this nasty history of global failure.

Investment in the Tech Sector

I have complete disdain for Walmart’s $3.3 billion purchase of New Jersey-based jet.com. This, after investing billions in their own short-lived walmart.com team in Northern California. All this to purportedly acquire a set of algorithms that enable consumer basket pricing to be lowered based upon content. This, in an online company that not only never made any money but also never demonstrated any ability or intent to do so in the future.

So, what does Walmart next do, in its mindless quest to “catch” Amazon: it buys a portfolio of mostly meaningless brands. Brands like Bonobos that bear no relationship to the core Walmart customer. This includes the mindless deal Walmart has done with Lord & Taylor. L&T, a brand, not only completely disconnected from Walmart’s base, but one that is on life support in its own right.

I would also point out that jet.com appears to have been shunted off to the side as more of a niche player in favor of walmart.com. Bentonville correctly notes that Walmart has far more brand recognition than Jet could ever have but fails to understand that Walmart is a store and therefore is trapped by its existent brand equity. This, unlike the company’s nemesis, Amazon, which is a marketplace. Jet can conceivably compete with Amazon. Walmart likely can’t. Jet’s most recent move is the creation of jetblack.com, a text-based customized same-day shopping service geared to New Yorkers who have doormen who can receive their purchases for them. Is this an idea in the face of emerging voice-based e-commerce, which they will likely be able to scale up? I don’t think so.

With regard to well-regarded acquisition strategies, Apple, for example, has acquired scores and scores of modestly sized and mostly unnoticeable companies. Their only outsized acquisition was Beats. All act as puzzle pieces that continue to expand the mosaic that defines the company’s brand architecture. Amazon, on a smaller but just as important scale, has followed the same path with its acquisition of profitable Whole Foods as a brand extension of Amazon Fresh. Amazon’s most recent acquisition of PillPack signals its long-awaited entry in the pharmaceutical business.

Strategic Developments: Thoughtful or Otherwise Ill-Advised

Walmart has a long-standing history of making strategic moves that either make no sense at the outset and never pan out, or, are never allowed to properly gestate and therefore never pan out either. Some years ago, the company bought a substantial portfolio of consumer brands such as White Stag and Faded Glory but then did nothing meaningful with them. Several years ago, they tried to move their fashion appeal upmarket to better compete with Target. The company created a dedicated merchandising team to accomplish this which was based in New York. The culture clash between NYC and Bentonville, however, foretold the failure of this initiative, which could very well have succeeded if patiently developed and properly integrated. This strategy and the team that mounted it disappeared inside of two years.

Sam’s Club should have always been a neck-and-neck competitor with Costco. It never happened. The company recently closed over 60 Sam’s Club stores, a 10 percent reduction in Sam’s stores’ portfolio – a vivid example of Sam’s Club’s ongoing inability to compete.

The Walmart neighborhood strategy, which launched with much fanfare, died a sudden death last year when all 114 mostly newly opened stores were suddenly closed. It made perfect sense to bring a well-edited version of Walmart’s Super Center into smaller communities to better serve its customers in those locales. It didn’t happen. Another expression of defeat. It remains to be seen whether Target’s neighborhood stores will be successful, but they are correctly working at the opportunity with a healthy future in mind.

As another example of poor strategic development, walmart.com recently, created its own version of Amazon’s Prime/2-day shipping subscription model (as did jet.com) only to abandon the program inside of a year. Subscription models which create extremely loyal customer affinity groups continue to work perfectly for Costco and Amazon. Why not Walmart or Jet?

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Thankfully the company appears to have dropped the idea, surfaced last year, calling for Walmart store associates to personally deliver walmart.com orders to customers on their way home. Though well intended, this idea is so fraught with common sense operational and legal issues that it never should have seen the light of day.

And finally, the company killed a customer self-checkout system that had just been rolled out to 100 stores. This in the face of the likelihood of an inevitable major rollout of Amazon Go’s technology into Whole Foods and elsewhere.

Integrity: Present in the Ranks or Not?

As a parting shot, I feel compelled to describe a meeting that I had years ago while serving as Sears Canada’s CEO, with the then CEO of Walmart Canada. We were both working on an educational program in conjunction with Ryerson University and Canada’s NRF, the Retail Counsel of Canada. We needed to get together to help organize this effort, and because of schedule issues and a desire to avoid creating an unwarranted headline, chose to meet for breakfast at a suburban diner in North Toronto. We made short work of the issues at hand, finished our unremarkable breakfast and asked for a check. My breakfast mate requested that the check be split and when it arrived, he discovered to his dismay that he did not have his wallet with him. No, this was not a ploy to avoid paying. The bill for the two of us was something like $25. I immediately stepped in to pay which completely unnerved the Walmart Canada CEO. who then briefly and succinctly described Walmart’s zero tolerance policy with regard to this sort of thing. I suggested he had two choices; let me pay his bill or head for the kitchen to start washing dishes. He begged me to assure him that his name would never appear on a Sears Canada credit card statement or expense voucher. No issue for me as I intended to pay cash and not seek reimbursement for our breakfast. As we walked into the parking lot he asked me again to promise that I would keep my word. I had then, as now, tremendous regard for this individual’s devotion to his company’s ethics policies. All this while at the same time a long-serving Walmart Vice Chairman was pocketing thousands of dollars of company gift cards for his own use and Walmart Mexico was engaged in a $50 million bribery scandal.

At the end of the day, Walmart, you can afford the world’s largest lawn dart. But how about growing some grass before you let it fly?

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