Last week, my garbage disposal broke down. I checked online to find out what I should replace it with. A consumer group recommended Waste-King. Where could I find it? A Google search revealed that the Waste-King was on sale at Amazon [AMZN] for $103.30.
If I had checked at Wal-Mart [WMT], I would have found that it is offering the same make and model for $129.27—more than 20% higher.
My experience is not exceptional. In a wonderfully insightful article the Wall Street Journal, John Jannarone cites a recent study which compared prices on a diverse basket of products: it found Wal-Mart is 19% more expensive than Amazon.
Wal-Mart: Death in The Amazonian Jungle
So I wasn't entirely surprised when I read this morning in the Wall Street Journal that Wal-Mart, the world's largest retailer, reported another quarterly decline in comparable-store sales at its key U.S. locations.
John Jannarone reports: "Wal-Mart is losing business to rivals of different shapes and sizes. Customer traffic at U.S. stores has declined for five straight quarters. Meanwhile, sales have surged at discounters like Dollar Tree and Family Dollar Stores. A recent study by Wells Fargo [WFC] showed that those chains often charge less than Wal-Mart, though they carry a much smaller selection of items."
So Wal-Mart is caught in the middle. If you want something quick, go to a convenience store. If you want something cheap, go to Amazon. Wal-Mart? We don't need you any more.
Jannarone reports: “While the likes of Wal-Mart and OfficeMax have struggled to increase revenues recently, Amazon has thrived, with sales rising 40% in 2010 to $34 billion. For the first time, annual sales of media products like books and DVDs accounted for less than half of total revenue.”
Over ten years, Wal-Mart’s share price has stagnated, while Amazon’s has increased around ten times.
So what is Wal-Mart doing about it?
Chief Executive Mike Duke said yesterday that “problems at Wal-Mart Stores Inc. have been more severe than management expected and will take time to fix.... Some of the pricing and merchandising issues in Wal-Mart U.S. ran deeper than we initially expected, and they require a response that will take time to see results.”
But will time show results? It seems more likely that if Mr Duke spends his time on pricing and merchandising issues, it won’t be long before Wal-Mart follows other retailers like Borders and Circuit City into bankruptcy, fresh victims of the Amazonian jungle.
Traditional Management Can’t Save Wal-Mart
There is no sign that Mr Duke realizes that his firm is suffering from a fatal disease: traditional management. Working over “pricing and merchandising issues” isn’t going to save Wal-Mart. Instead Wal-Mart has reinvent itself. Wal-Mart has to start delighting its customers.
Wal-Mart has some strengths. It has a lot of money and a lot of assets.
And it's a plus that Wal-Mart is undertaking a thorough reform of its energy and environmental policies and seems intent on becoming a model green corporation. That’s welcome news, but it’s not a business strategy that will save the firm.
And Wal-Mart also has significant handicaps.
Wal-Mart’s assets are a mixed blessing. In the Amazonian jungle, bytes beat bricks. Managing a whole lot of real estate assets can distract management from its real challenge—creating a business that has a future. Besides, the stores are big and clunky and located in places that people used to be willing to drive to, just to buy cheap stuff. Now that its stuff is no longer the cheapest, distance becomes an issue.
Wal-Mart also has an unfortunate tradition of extraordinarily asocial practices in labor relations. As a result, it may not have the kind of skilled and motivated staff that can easily generate the continuous innovation that is needed to turn Wal-Mart into a genuine 21st Century firm.
Moreover Wal-Mart has no tradition of delighting its customers. It’s the quintessential 20th Century firm with an inside-out perspective: “You buy what we sell, because it’s cheaper.” Now that what Wal-Mart sells is no longer cheaper, that business model is broken.
And Wal-Mart cannot simply emulate Amazon. Amazon is already so far ahead as an online firm, Wal-Mart will never be able to catch up.
Instead Wal-Mart has to reinvent its business model from scratch. Mr Duke isn’t going to save Wal-Mart just by working on pricing and merchandising. He needs to re-think his whole business.
What would a reinvented Wal-Mart look like?
How could Wal-Mart reinvent itself? It must begin by asking who its customers are and what would delight them? Wal-Mart has to start understanding them in depth, figuring out what might delight them and go on doing it, time after time.
Personally, I don’t know Wal-Mart customers well, but we could take the analogous case of my relationship with a local supermarket to start to see some of the directions that reinventing a supermarket might take.
- Offer what the customers really want: It’s only in the last few years that my local supermarket offered wine. Now it offers a wide selection of wines that I like at reasonable prices. This makes me want to go the supermarket, something I used to hate doing.
- Eliminate checkout queues: I used to hate waiting in line at the supermarket, as the checkout clerk moved at a snail’s pace to scan items. Now I can scan my own items at a self-checkout counter. I like doing the scanning and checking the prices, rather than waiting in a queue. I am in and out in a flash.
- Deliver: I now have heavy groceries delivered in bulk from the local supermarket to my kitchen. I used to hate carrying all that stuff. Now I don’t need to. The groceries are about the same price as Amazon groceries online, but the local supermarket guarantees the time when they will be delivered, something Amazon is unable so far to do. So for now at least, I have the groceries delivered by the local supermarket, not Amazon.
- Treat its own staff right: One thing I still don’t like about the local supermarket is the attitude of the staff, who seem embittered by the way they are treated there. If they were treated better, their attitude would be better, and they might be more inclined to find other ways that would delight me.
I am obviously not a typical Wal-Mart customer and am not likely to be, at least in Wal-Mart’s current incarnation. But my experience with the local supermarket begins to show how one might turn a relatively unpleasant relationship with a supermarket into something rather more promising.
For Wal-Mart to pursue this kind of a strategy, it would require a shift from an inside-out perspective of making money for its shareholders to one of pursuing customer capitalism and adopting an outside-in perspective that consistently seeks ways to delight its customers.
Mr Duke and his team would need to decide who its customers are, figure out what are the hopes and dreams and fears and irritations and fears, find ways to alleviate those fears and irritations and fulfill those hopes and dreams.
As Umair Haque argues in The New Capitalist Manifesto, firms need to stop focusing on outputs and instead focus on outcomes.
They have to be willing to scrap the things that made a winning firm in the 20th Century and instead commit to becoming a genuine 21st Century firm. Only then will Wal-Mart have a future.
To learn more
Becoming a 21st Century organization involves five basic shifts from traditional management practice:
- Part 1: Overview
- Part 2: Delighting the customer
- Part 3: From controller to enabler
- Part 4. From bureaucracy to dynamic linking
- Part 5: From value to values.
- Part 6: From command to conversation
For a comprehensive history of the rise and fall of traditional management as well as an account of the principles and practices underlying the reinvention of management, read my book, The Leader’s Guide to Radical Management (Jossey-Bass 2010).