By Nikki Baird, Managing Partner
4/15/2008
Last week at the World Retail Congress in Barcelona, one of the last speakers was Jack Shewmaker, member of Wal-Mart’s Board of Directors, and former executive. It was shame he was last, though I suspect that the conference organizers put him near the end in order to try to hold people through to the last day. It didn’t work, unfortunately, and there were few people to hear his message.
In his very folksy way, complete with Arkansas twang, Mr. Shewmaker proceeded to outline 6 challenge areas that Wal-Mart faces today, that if they don’t fix, Shewmaker believes could threaten the future success of the company. His objective in presenting these challenges was not to publicly castigate Wal-Mart, rather it was to share his personal experience so that others could recognize the trends in their own companies, and learn how to avoid the challenges in the first place. Here are his six big challenges that he believes Wal-Mart faces today:
- Under-estimating the competition. I’ve heard this story before – in fact, have heard H. Lee Scott tell this story as well: Whenever Sam Walton would walk into a competitor’s store, he never compared them in terms of what Wal-Mart was doing better. He always looked at a competitor’s store with an eye towards what Wal-Mart could learn, so that he could improve his own company’s operations. The challenge when you get very big and very successful, is it’s hard to avoid drinking your own kool-aid. But if you stop learning from your competition, you risk under-estimating them.
- Failure to succinctly meet customer needs in specific markets. Customers in rural China are just as smart as customers in rural America, and customers worldwide understand that there is more information out there to help them choose the right products. Shewmaker says substitute items aren’t good enough – you have to get them the information and the product selection that they want. I’ve watched Wal-Mart struggle with this one – we all have – as they have tried to figure out what elements of their business model work in other countries, and which ones don’t. I’ve heard other executives at Wal-Mart talk with a certain degree of smugness about how they managed to educate consumers in other countries on how the Wal-Mart way is better – and then subsequently pull out or drastically reduce their presence in those markets. However, this is not Wal-Mart’s challenge alone, as TESCO’s strategy for Fresh & Easy has demonstrated. And as more and more retailers look to expand into other markets, this challenge won’t be going away any time soon. Perhaps this is the global paradox: how do you adapt to local market conditions without veering too far from the core values of your brand? Perhaps Wal-Mart and others ought to ask their suppliers for advice – companies like P&G have been struggling with that question for years.
- Getting so caught up in growth mode, you fail to reinvest in the core. Shewmaker talked about his time as Wal-Mart’s CFO and said that during that time, you could basically assume that a store’s effective life was 15 years. He doesn’t believe that to be anywhere near the case today – more like 3-5 years, leaning closer to 3 – and encouraged retailers to really take their capex budget apart and put it back together with an eye towards the accelerating pace of change and its impact on stores. I second this one, for reasons I’ll have to develop in another piece. I’ll just say, with cross-channel on the rise, the economic model that supports stores and the investment in stores today is going to have to change – because there are going to be more sales that pass through the store but aren’t transacted there. And stores aren’t modeled to support that kind of shopping process. Ah, if only Service Merchandise could have held on for 10 more years. Perhaps they would suddenly find themselves at the forefront of retailing…
- Make sure you measure the right things. This isn’t how Shewmaker presented this challenge, but in the end it was what he said. He talked about this challenge in the context of technology: new technologies bring us new data about our business, but we don’t change the measures that we use to track how our business is doing. And success can be a moving target – so it’s critical to make sure that you take into account the new ways you can look at your business, and make sure you’re using the right measures – the best measures, out of all of that data – to track your progress.
- Balance multiple stakeholders. As you get bigger, it gets tougher to balance the needs of multiple stakeholders – shareholders, suppliers, employees, etc. If you get skewed too far in one direction – say, to shareholders – your business will suffer.
- (Shewmaker’s most important one) The retail business is changing – fast. If you’re still using the same model of retailing that you used 5 years ago, Shewmaker encourages you to revisit that. Categories are changing, consumers are changing. Put your vote in the categories of merchandise that are relevant to consumers TODAY.
Shewmaker closed with the following: “The world is changing. Wal-Mart has to change - they are. But I'm not sure they're changing fast enough. Are you?
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