By Paula Rosenblum, Managing Partner
February 3, 2010
Everyone in retail wants to know what Walmart is doing. Like the old Smith-Barney commercials, when the name “Walmart” is uttered, all heads crane in the direction of the sound. Last week our necks craned as the company announced three initiatives: one to consolidate global sourcing operations for hard goods and soft goods in partnership with Li and Fung, another to divide US operations into three groups, to separately focus on real estate and logistics, merchandising and eCommerce and a third to lay off 300 people at its Bentonville, Arkansas corporate headquarters.
Now that the dust has settled, and most everyone else has weighed in, we decided it was time to give our opinion. We believe none of these initiatives should give competitors cause for alarm and/or dismay. Walmart is anything but a fast mover in these areas and many, if not most of you, have already implemented something similar. Have you noticed?
Let’s start with global sourcing. As you know, RSR is currently running a benchmark survey on product lifecycle management (obligatory plug – we’d really, really like to see what your company is doing with private label product…please do take a few minutes and participate). We’ve run more than one benchmark on global sourcing over the years and a clear best practice has been to treat sourcing of raw materials and finished goods where appropriate as a shared corporate resource. Heck..the Limited has been doing this with Mast Industries and Li and Fung since the early 1980’s. We believe the Walmart deal with Li and Fung is the equivalent of “teach us to fish…”. Li and Fung has serious expertise and the factory connections to scale. The joint venture will handle $2 billion of product in year one (a pittance by Walmart standards), and Walmart has the right to buy Li and Fung out of the venture later. So what does this mean? It’s good news for Walmart shareholders, good news for Li and Fung, bad news for some Walmart suppliers, and more or less irrelevant to the competition.
Next, let’s take a quick look at splitting the US into three regions for the purposes of real estate, logistics management and merchandising. We don’t have any quibble with regionalized logistics management. In an increasingly cross-channel world, and with Walmart’s number of stores, this is sensible. But let’s look at real estate.
The purpose of regionalizing real estate is to help find and manage new locations in markets that are becoming saturated. I wonder: is it possible that the markets really are actually…saturated? Most of us use technology to help us find new store locations. It’s a popular application space. RSR has found that under continued pressure for growth, retailers sometimes can’t accept the decisions made by their software in this regard…so they reduce radius restrictions, loosen demographic standards and just keep on growing. Does this impact other retailers? Yes, but in the long run it has the biggest impact on the company using the strategy, and that impact is NOT positive (think “Gap”). There is no such thing as an infinite market, even for Walmart.
Now, let’s look at merchandising. I confess a certain predisposition against “regionalized” merchandising. I’m a Floridian. What plays in Tallahassee doesn’t really play well in Miami and visa versa. To me, true localization is as much about demographics and psychographics as it is about geography. Tallahassee has more in common with Albany than it does with Miami (weather excepted, of course). Walmart may regionalize its merchandising operations, but I’m not sure that’s going to help create cohesive localized assortments. For that, it’s going to need serious and strong analytics. And those analytics will have to be set at levels a lot deeper than “store”. The impact on retailers? Too soon to tell.
With regard to Walmart laying off 300 employees at its home office: I’m not even sure why it was worth a press release, unless it was a pre-emptive strike against some other sensationalist media play.
So where does that leave us? January sales have come out of the gate pretty strong for all reporting (which is everyone EXCEPT Walmart). The holiday trend continues. Absent some horrible act of God or terrorism, we seem to be working our way out of the economic woods. While it’s always fun to read what Walmart’s doing, the rest of us have our work clearly laid out for us: continue to improve the in-store and on-line customer experience, continue efforts to treat inventory as a shared resource across channels, get serious about mobility, take advantage of the higher quality in-store workforce…and yes, continue to source global and assort locally. In other words – stick to our knitting and keep customers and shareholders happy.
I coined the term “Post-Walmart World” in 2004. My thoughts at that time were – “Walmart exists. Get over it and move on. There is space for retailers who focus on the best customer experience or the best, highest quality products.” Here we are in 2010. I still believe that’s so.
|
