Why Wal-Mart Is Less Amazing Than Amazon [2014/2/1]

[sofla77]

Why Wal-Mart Is Less Amazing Than Amazon

  The world’s biggest retailer is stumbling. Its genial new boss needs to prove he can push through hard changes

  WALMART is at an "inflection point". Those words are truer now than when Bill Simon, the head of its American operation, uttered them last October. He was talking about Walmart’s plan for the first time to open more small and medium-sized stores in 2014 than giant "supercentres", and all that would mean. Now another big change looms. On February 1st the company gets a new chief executive, Doug McMillon (pictured), until now the head of its international business.

  In some respects Mr McMillon looks like a natural choice to manage a behemoth that inspires loathing and loyalty in equal measure. A native of Arkansas, Walmart’s home state, he started out in one of the company’s warehouses, rose as a specialist in merchandising (deciding how goods are displayed and sold in stores) and was head of the Sam’s Club unit, stores where members buy in bulk.

  Genial and approachable, Mr McMillon may cure the corporate laryngitis that afflicts Walmart when it talks to its 2.2m employees, to its giant customer base (90% of Americans shop there at least once a year) and to critics who say it pays miserly wages and sucks life out of town centres. On January 15th the National Labour Relations Board accused Walmart of sacking and disciplining workers who went on strike in 2012. Walmart says it acted lawfully and claims to promote 160,000 people a year; Mr McMillon’s box-shifting calluses make such claims a bit more convincing.

  Yet the international business, which he has led since 2009, is not thriving. This year it is expected to account for 28% of sales but just 19% of operating income. Walmart has retrenched in China and Brazil after expanding too fast. Murky policies on foreign investment in retailing have stymied Walmart’s push into India. Walmart is co-operating with investigations into allegations that executives in Mexico bribed officials; the inquiries have been broadened to the company’s operations in India, Brazil and China. Mr McMillon is not to blame for these setbacks, many of which date from before he took over, but neither has he brought about a turnaround. Walmart will open less new floor space in foreign markets this year than originally planned: 14m square feet (1.3m square metres) rather than 20m-22m.

  His new job brings a new set of headaches. In America Walmart’s same-store sales dropped in 2013, as those of its rivals rose (see chart). Its core customers are shoppers on tight budgets, drawn by Walmart’s promise of "every day low prices". When the government raised payroll taxes and cut food-stamp benefits last year, they suffered most. Their spirits should revive when their incomes do.

 

 Other problems will prove more stubborn. The core of Walmart’s American business is its 3,275 supercentres, where shoppers can buy almost anything, supposedly more cheaply than anywhere else. Now Amazon makes it even simpler to buy the sort of thing that draws shoppers to Walmart’s big boxes: in particular, electronics and consumables like nappies and detergent. Hardly less menacing to Walmart are dollar stores, which sell household wares at rock-bottom prices and whose branches are closer than supercentres to most shoppers’ homes.

  Hence Mr Simon’s "inflection". This year Walmart will open 120-150 smaller stores, mainly midsized grocery shops, but just 115 supercentres. Still-smaller "express stores" are to carry Walmart’s banner into city centres, where it is under-represented, and see off pesky dollar stores.

  Walmart has stepped up its counterattack on Amazon. Walmart.com, where independent merchants sell alongside Walmart’s own offering, more than doubled the number of items for sale, to 5m, in the past year. WalmartLabs in California produces apps that let customers scan items while they shop, and beam the information to automatic tills. There are plans to build five to ten new warehouses to handle online orders. Walmart recently named a chief of e-commerce logistics, a new job. The aim, says Neil Ashe, boss of its online operations, is to match Amazon’s range and its speed of delivery within two years. But it is chasing a fast-moving target.

  What quickens hearts in Bentonville, Walmart’s headquarters, is the idea of pulling together shops, warehouses, delivery fleets and technology into "market ecosystems" that no one else can match. Back offices will serve multiple stores rather than just one, chopping costs. Supercentres will double as distribution points, dispatching fully laden lorries rather than near-empty ones to smaller stores. Customers will find it wonderfully convenient: a mother who wants to play Scrabble with her children could order the game online and pick it up the same day at a convenience store rather than drive to a supercentre. Where Walmart has tested the ecosystem idea, small stores’ sales of some types of goods rose by 35%, Mr Simon claims.

  However, Walmart is some way from fusing a new, Amazonian brain onto a bricks-and-mortar body. Its e-commerce operation still runs separately from the main American business: it holds its own stock and has its own buying team. Shipping is thought to cost Walmart nearly twice as much per package as it does Amazon. Walmart’s e-commerce sales are growing fast and reached $10 billion in 2013. But that is still puny compared with Amazon’s $75 billion or so.

  Mr McMillon will have to push harder. If supercentres are not to become obsolete, they must become "destination stores" where people go to eat and play as well as shop, argues Natalie Berg of Planet Retail, a consulting firm. Despite its recent shifts in strategy, Walmart is still investing too much in supercentres and international expansion, complains Paul Trussell, an analyst at Deutsche Bank. It should focus on smaller stores and online operations, and return more cash to shareholders.

Whether Mr McMillon is the right man to do all this is not clear. He knows Walmart well and has the confidence of the Walton family, which holds a majority of the shares. He is a consummate company man. The question is whether he loves it enough to force it to change.

[Van!]

This is just a token of my gratitude...^^

[Van!]

genial
/?d?iː.ni.?l/ adjective
friendly and pleasant
The headteacher is very genial/has a genial manner.
geniality
/?d?iː.ni?æl.?.ti/ (US) /-?.t ?i/ noun [U]
His geniality, reliability and ability made him a popular figure.
genially
/?d?iː.ni.?l.i/ adverb

[Van!]

consummate
/?k?n.s?.m?t/ (US) /?k?ːn-/ adjective [before noun] formal
perfect, or complete in every way
a life of consummate happiness
He's a consummate athlete/gentleman/liar.
consummate
/?k?n.sj?.me?t/ (US) /?k?ːn.s?-/ verb [T]
HAVE SEX?
1. legal to make a marriage or romantic relationship complete by having sex
The marriage was never consummated.
consummate
/?k?n.sj?.me?t/ (US) /?k?ːn.s?-/ verb [T]
COMPLETE?
2. formal to make something complete or perfect