Jim Prevor's Perishable Pundit, July 27, 2010

	Print Article
	Send Article
	Respond
	Permalink
	Share Article

	del.icio.us
	Diigo
	Digg This
	Fark
	Mr. Wong
	Mixx
	Newsvine
	Propeller
	Reddit
	Simpy
	Slashdot
	StumbleUpon
	Technorati
	MySpace
	Facebook
	Twitter

We have written a great deal about Wal-Mart, and now the whole spirit of the company has seemed to pivot. Why is all this happening? Simple: John Fleming, who had been the merchandising chief at Target before he became merchandising chief at Wal-Mart, is leaving Wal-Mart in August, and Eduardo Castro-Wright has been removed as President/CEO of Wal-Mart’s US Division, although he will continue to work for Wal-Mart as a Vice Chairman and as overseer of Wal-Mart’s e-commerce and global procurement efforts.

Both moves were positioned by Wal-Mart as accommodations to personal needs. Eduardo Castro-Wright’s wife is seriously ill — she had a heart transplant in California — and now California is where Eduardo Castro-Wright will be based. John Fleming made the move to Bentonville but his family stayed behind in Minnesota and he has been seeking a way to be more connected to them.

Doubtless this is all true, and one doesn’t want to be insensitive, but it is also true that these are positions at the very pinnacle of American corporate life and that those who choose to compete on this level make many sacrifices that normal people would not. Combine this with the fact that such high achievers are given every possible technological tool and every possible accommodation… and skepticism is always in order when such high level people give up important positions because of the sudden need to deal with family issues.

One would be foolish not to think that if the last four consecutive quarters had been barn-burners rather than wrought with negative same-store sales, Mike Duke, Wal-Mart’s CEO, would have worked very hard to keep the team together.

But the team wasn’t producing.

Jack Neff, who used to write for PRODUCE BUSINESS and then went on to bigger and better things at Advertising Age, wrote a terrific story on the reassessment going on at Wal-Mart. He began the piece with this, possibly apocryphal anecdote:

There’s a legend circulating around Bentonville: Walmart Chairman Lee Scott enters a Friday morning senior-management meeting with two bags of groceries from Harps, the Arkansas retail chain that has somehow survived the dominance of its much bigger hometown rival.

The bags, the story goes, were filled with items Mr. Scott’s wife had purchased that week because she couldn’t find them at Walmart. The implication: The chain’s assortment cutbacks under so-called Project Impact to declutter aisles and make the shopping experience more upscale had gone too far.

Spokesman David Tovar said he could find no evidence of “anything quite so dramatic” happening at a senior-management meeting and said the story may have gained some details in the retelling. But he did acknowledge that assortment issues have been a management concern for the past nine months.

No wonder. Wal-Mart, arguably the most successful retailer in the world, came to be occupied by people like Fleming and Castro-Wright who perceived the place as a broken entity that they had to fix. To do this, they set out to make Wal-Mart more like Target, more like Tesco, and more like everybody else. Yet the secret to its success, of course, was being what it uniquely was — Wal-Mart.

Now, as the famed “Action Alley” starts to once again feature product on promotion rather than pure and clean aisles, the sense of getting back to its roots is everywhere. The article mentions the point:

One person close to the company, noting a big display of watermelons next to little-girls’ dresses in Bentonville area stores, said, “I think Sam [Walton] would be smiling about that.” He wasn’t so sure, though, how Mr. Sam would have reacted to the idea, attributed to Mr. Fleming, “of removing 15% of the inventory from the stores because surveys show consumers see it as improving the experience.”

He likened Walmart’s move to become more like Target to Coke changing its formula to be more like Pepsi after the Pepsi Challenge taste tests of the 1980s. “A lot of people did like Pepsi — and those were mostly Pepsi drinkers,” he said. Blind taste tests aside, there were always a lot more Coke drinkers in the U.S., and changing the formula alienated them until Coke offered the old one again.

In similar fashion, Mr. Fleming led a drive to make Walmart look more like Target, a move that played well in consumer experience surveys but didn’t necessarily translate into increased sales for the retailer, which has had four consecutive quarters of declining U.S. same-store sales even as competitors from Target to dollar stores saw improving results.

The detachment of the current Walmart management team from the retailer’s roots has been a recurrent theme among some supplier executives, some of whom knew Sam Walton themselves — although most of Walmart’s current leaders didn’t.

Can’t imagine who would focus on watermelons as they chat with the reporter!  There are still big mistakes being made. For example, the private label initiative is a disaster:

Last year, at a time many suppliers had their doubts amid a ramp-up in Walmart’s Great Value private label, Mr. Simon at an analyst conference reiterated that Walmart is a “house of brands” dedicated to working with brand suppliers. Subsequently, Great Value expanded well beyond what many expected based on Mr. Simon’s pronouncement, but in most every category where it gained share, Walmart lost overall category share to other classes of trade, said Deutsche Bank consumer products analyst Bill Schmitz.

Wal-Mart was built on selling the products that consumers wanted for less, not forcing consumers to buy brands they don’t want. Although some private label programs have become high quality brands over many years -- Marks & Spencer, Kirkland, Trader Joe’s, etc. — Wal-Mart doesn’t have that equity. Its brands are assumed by consumers to be cheap, not high quality.

Indeed the whole idea of reducing assortment, as in the Lee Scott anecdote that starts the article, doesn’t really make sense. Aldi has to carefully restrict assortment. Wal-Mart’s whole advantage is that it can have everything consumers want in its 180,000 square feet — and that is a big advantage.

It is not clear if the reassessment will cause Wal-Mart to reevaluate some of the procurement changes it has been rolling out on fresh produce. Eduardo Castro-Wright is still running global procurement, which spearheads the effort. But anyone looking honestly at the numbers has to acknowledge that the new plan is a catastrophic failure. Items that were expected to be in-stock 99% of the time under the old regime now are pulling numbers that show availability at 65, 75 and 85%. That is a fortune in lost sales and disappointed customers.

Just as it doesn’t help Wal-Mart to grow private label if it loses market share on the whole category, it won’t help Wal-Mart to buy a few pennies cheaper and not have anything to sell.