Tuesday, March 08, 2011

Wal-Mart Tries to Recapture Mr. Sam's Winning Formula

2/22/2011 WSJ

Wal-Mart Stores Inc. is in the midst of its worst U.S. sales slump ever.
When we work with clients in helping them grow their businesses, we stress that leadership MUST first define what they are and what they are not. What strategic space do they want to compete in is the key question. Many feel initially that is this a frivolous exercise until they see its power. We use the approach of defining their Core Mission—what is the ultimate value you are creating for your customers (the Core value) and what is the underlying core competency or DNA of your company that enables you to deliver this value better than competition (the Core Process). For Wal-Mart, their Core Value was “Save money, live better” for their target customer base per their advertising slogan. Their Core Process is their incredible value chain systems they put in place with their suppliers. Wal-Mart’s recent history shows the danger of changing your Core Mission (often is search of new growth) once firmly established and successful.

"When it reports earnings on Tuesday, the retailer is widely expected to post its second straight year of declining domestic same-store sales.Wal-Mart's struggles are the result of a misstep: To jump-start lethargic growth and counter the rise of competitors such as cheap-chic rival Target Corp., executives veered away from the winning formula of late founder Sam Walton to provide "every day low prices" to the American working class. Wal-Mart, the world's biggest retailer by sales, instead raised prices on some items while promoting deals on others.
Company executives acknowledge having miscalculated and are adjusting their strategy again. The big question is how quickly the mammoth chain can turn itself around.Wal-Mart's shift from its traditional core customer manifested itself in numerous ways. A foray into organic foods didn't catch on with discount shoppers. A push to sell trendy fashions like skinny jeans bombed. And an attempt to cut clutter in stores to attract higher-income customers wound up undermining Wal-Mart's appeal to its traditional audience.The Bentonville, Ark., chain's up-market push, which began before the recession, succeeded in attracting some well-heeled customers, but at great cost. Wal-Mart lost its iron grip on U.S. households earning less than $70,000 a year—which made up 68% of its domestic business—to other discounters."The basic Wal-Mart customer didn't leave Wal-Mart. What happened is that Wal-Mart left the customer," said former Wal-Mart executive Jimmy Wright, who supervised the company's distribution networks from 1992 to 1998 before leaving to co-found consulting firm Diversified Retail Solutions.Wal-Mart has shuffled top U.S. executives in the past nine months and is going back to basics—eschewing fashionable clothes in favor of socks and sweat pants, for example—it an effort to recover market share........"Clearly, we've lost some of our focus on what I would call the core customer," Andy Barron, a Wal-Mart executive vice president, said at an investor meeting. "You might say, in short, that we were trying to be something that maybe we're not."......…So once again, Wal-Mart is back to cramming wood pallets of $8.97 boxed wine and $8 Justin Bieber CDs into the store's corridors, recreating the messy procession of discount merchandise in the main aisles that the company calls "action alley." Now analysts are concerned that, in changing direction again, Wal-Mart risks alienating whatever higher scale shoppers it had gained"

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