Sounding Board: Losing sleep

A looming discrimination suit is keeping Walmart executives up at night. But the real concern is not whether the retailer will survive, but how it will adapt.

By Len Lewis

For me, the fun part about being a journalist is not just looking for answers, but asking questions. One of my longtime favorite queries for executives I interview is: “What keeps you up at night?”

My personal 3 a.m. epiphanies are pretty simple, like whether I let the dog out, how I’m going to get through a three-deadline day or if I took the pot roast out of the freezer.

I suspect the issues causing insomnia among Walmart executives are a bit more complex as they ponder “what if…?” As in “what if” they have to pony up billions of dollars in a gender discrimination class action lawsuit. If that is not enough to keep you up nights, I don’t know what is.

My second question is somewhat less contentious, but just as important: “What is next?” This isn’t about whether the house that Walmart built will survive but how it will adapt. It has reached a seminal period in its development and the strategies that made it king of the hill may not work as well in a vastly different and rapidly changing retail environment in which smaller formats, urban retailing, über discounting (e.g., Aldi) and customization are crucial.

One tactical shift was the chain’s recent announcement that it is setting up Walmart East in Atlanta. Walmart East will be responsible for the strategic direction, including supply chain, personnel and real estate decisions, of 1,600 stores.

Pardon the military metaphor, but this is all about putting boots on the ground where you need them. In this case, penetration of urban markets such as New York with a more flexible strategy, according to Natalie Berg, global research director for Planet Retail in London. Does logic dictate that the next step might be Walmart West to exploit opportunities in uncharted territories like California? Maybe even Walmart Midwest to explore the Plains states, or to take a more focused approach to Chicago, which is looking more and more like ground zero for Walmart Express.

This might be a bit over the top and opinions are mixed about how deeply Walmart could or wants to divisionalize.  But this brings us to the question of whether we might see a new “decentralized” Walmart under which decision-making is no longer just a broadcast from Bentonville.

This would necessitate a long-term shift in its basic business philosophy that is unlikely to happen if, in any way, it adds to the cost of doing business. That is the deal breaker.

However, pushing decision-making into the field is not altogether unknown.  It is why Walmart succeeded in quickly getting food, water and other supplies to New Orleans after Hurricane Katrina when FEMA was paralyzed by a centralized bureaucracy. It was Walmart at its best—exploiting core competencies without tripping over itself.

Local ingenuity is also why the chain was able to quickly reopen stores and stock shelves in the wake of the devastating earthquake and tsunami that rocked Japan, a situation that could easily have been a supply chain nightmare. It is also why certain synergies learned in Latin America will be exported to China and to small box retailing in the U.S, according to Berg, citing such retail formats as Bodega Aurrera Express in Mexico or Todo Dia in Brazil. Both have ROIs equivalent to supercenters, but are small enough for tier two and tier three cities.

Decentralization, if you will allow me to use a broad definition, could also take place if Walmart acquired or partnered with other retail channels like health food stores instead of developing them in-house. They could very well bow to local expertise in order to avoid what some call a “knowledge problem.”

Quite simply, people and operations need room to adapt. In this respect, Walmart is no different than the rest of the industry. They have done it overseas, so why not here?

This kind of regional or local control, combined with the shopper analytics that Walmart corporate is honing through its Consumer Insights division, will make them an even more formidable.

That thought will be keeping a lot of people up at night.

Len Lewis, a regular Grocery Headquarters columnist, is a veteran industry journalist, commentator and editorial director of Lewis Com­munications, Inc. He is the author of The Trader Joe’s Ad­venture—Turning a Unique Approach to Business into a Retail and Cultural Phenomenon. He can be reached at lenlewis@optonline.net or at www.lenlewiscommunications.com.

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