Creative Leisure News - Business-Wise

Mike's often irreverent, thought-provoking analysis of the industry-- with an occasional guest columnist.

The Decade's Major Influences, Pt. VI: Wal-Mart

So much to say, so little space (even on the Internet).

by Mike Hartnett (October 1, 2007)

(Note: To celebrate Creative Leisure News' 10th anniversary, I've surveyed readers and chosen the people, companies, and events of the past decade that have had the greatest influence on our industry of today. In previous issues I wrote about the decade's most influential category, scrapbooking; the most influential person, Michael Rouleau; the new generation of craft consumers; changes in the old order; and imports � click on the headlines in the right-hand column to read them. In future issues I'll write about other major influences � Technology ... Media ... Investors ... Lower Margins ... Yarn and Beads.)

It seems everyone loves or hates Wal-Mart. I agree with both.

Let's start with some things I've been told over the years:

1. From my wife, who heads a social agency dealing with the poorest area in Peoria, IL: "Until places like Big Lots and Dollar General came along, Wal-Mart was the only chance my clients ever had to buy something new."

2. From a vendor many years ago: "Wal-Mart is like having a 500 pound gorilla for a pet. You can say you own it, but you pretty much do what it says."

3. "The good news is, I just sold Wal-Mart. The bad news is, I just sold Wal-Mart."

4. From a vendor who'd just declared bankruptcy and called to say goodbye: "It's my own fault. I said yes to Wal-Mart once too often. I moved a lot of product, but I never made any money."

5. From a Wal-Mart buyer, who is no longer there: "Confidentially, if I were a small company, I'd never sell to us. We're too big and too hard. We chew vendors up and spit 'em out."

6. From a small town mayor in Mississippi, after Katrina: "I wish FEMA was as efficient at bringing help to us as Wal-Mart."

My pro Wal-Mart thoughts.

Wal-Mart gets a bad rap. Wal-Mart kills the independents, screws the employees, bullies cities for tax breaks, causes unemployment by forcing vendors to source offshore, etc. etc. etc.

Ok, why isn't anyone yelling about Kmart or countless other chains? Because Wal-Mart is very good at what it does. Doesn't the big guy always get picked on more than the competitors? If Wal-Mart over the years had been led by the likes of the goofus who led Kmart into bankruptcy, you wouldn't hear any complaints about Wal-Mart.

About that goofus? He was later charged with criminal offenses. I assume his only defense was, "Hey I didn't break the law, I was just stupid."

Here's an example: at one point he promised to match Wal-Mart's prices on everything. I knew that was a recipe for disaster because Wal-Mart was better at moving products from the manufacturers' factories to store shelves more quickly, efficiently, and inexpensively than anyone.

Remember the gorilla quote? Over the years Wal-Mart demanded vendors adopt UPC codes and EDI. I can't count the number of vendors who complained to me about those things, how Wal-Mart had no right to "force" them into buying the technology. End result? Thousands of vendors and retailers are now more efficient because Wal-Mart bullied them into adopting the technology.

Critics now complain that Wal-Mart isn't the company it used to be, citing its slowing sales growth. Furthermore, same-store sales growth isn't near what Target's is. Uh, excuse me? The company has to sell hundreds and hundreds of billions of dollars every year just to have flat sales.

Let's examine that a minute: Company A has sales grow 0.5% from $5 billion to $5.025 billion, an increase of $25 million. Company B also has a sales growth $25 million, from $1 billion to $1.025 billion � same amount of dollar increase, but everyone thinks Company B is a genius � but Company A is a dolt.

Another example: Target's monthly same-store sales percentages are always better than Wal-Mart's. But let's look closer. In Peoria, IL, for example, there was a traditional Wal-Mart; then a few years ago the company opened a superstore a couple of miles away, which had to have stolen some of the original store's business. That year, the superstore's sales weren't counted because it hadn't been open a full yearr, but the traditional store's sales were.

Today, Wal-Mart seems to be leading the retail industry to go "green." It's restocking all its stores with concentrated versions of liquid laundry detergent to save water, plastic, and cardboard, the Associated Press reported. Now it has asked certain suppliers to measure the amount of energy they use to make various products (but none from our industry, yet), Business Week reported. The company hasn't said if it will use the info to choose one supplier over another, but just the threat will probably make those suppliers more energy efficient. Wal-Mart had previously set a goal of cutting packaging waste by 25% in three years.

Meanwhile, Wal-Mart is offering relatively low-cost medical insurance to employees, and recently has greatly expanded its $4 generic drug program.

Because Wal-Mart stock has split 11 times over the years, many long-time employees can retire as millionaires.

If I took a poll of vendors who sell to the big boxes, I am certain they would name as their favorite customers Wal-Mart and Hobby Lobby. Why? "Because they don't beat you up with all this extra stuff, all the goofy entitlements" one vendor explained. "They just want the best price and on-time shipping."

Wal-Mart has been meticulous about squeezing costs out of the distribution system and passing those savings directly to consumers. Wal-Mart's headquarters is relatively primitive compared to many competitors. Are Wal-Mart clerks underpaid? Well, the company execs, from the buyers to CEO Lee Scott, make less than their colleagues at other chains.

Wal-Mart is so good at squeezing excess costs, sometimes I think we should put Wal-Mart in charge of the country's health care system.

My Wal-Mart concerns.

By cutting stitchery with so little advance notice to vendors, Wal-Mart is sending this message to all its suppliers: "You keep doing what we want, but don't expect one shred of loyalty in return."

Upper management is apparently trying to expand its appeal to consumers with more money. Fair enough, but a sushi bar in the Plano, TX store? The hot new apparel line flopped. So now there's going to be a new tag line, after 19 years. Oh yeah, that will lure some Nordstrom shoppers.

At the same time, they seem to be turning their back on their core customer. Example #1: They've apparently rejected Sam Walton's philosophy that fabric attracts the kind of customer he wants in his stores.

Example #2: Dropping its layaway program. "The move [to eliminate layaways] is especially jarring to some families because it has come amid other changes Wal-Mart has made, including cutting back on fabric departments and stocking more trendy clothes, as the discounting titan tries to appeal to a broader swath of shoppers, including more upscale consumers. Those changes, some longtime shoppers say, has made them feel like the store is less interested in catering to its traditional and loyal market of family shoppers on tight budgets," wrote Allison Linn, Senior Writer for MSNBC.

That technology advantage Wal-Mart has enjoyed may be slipping away. A vendor told me he had toured a Wal-Mart distribution center a decade ago and was awestruck by its efficiency. Ten years later, he toured it again, and also Michaels warehouse. The Wal-Mart center hadn't changed, and now Michaels was just as good, if not better.

As a journalist, my major complaint is that Wal-Mart won't talk to the press, unless it's the Wall Street Journal or somesuch, and only when the company feels like talking. The result is countless articles, including some in CLN, that probably contain inaccuracies. Well, duh!

The problem is, the buyers are ordered not to talk to the press, and the folks in the public relations department aren't told enough information to be helpful. (You won't find nicer people than those in the pr department, but if they're not told anything....)

Some examples: What, exactly, is going on with fabric? There are stories that the company is re-instating the fabric department when locals complain loudly enough.

And what's happening with the craft department? It's being combined with party goods and called "Family Transitions." No, wait a minute, it's called "Celebrations." What is it? And will it be system wide, and if so, when?

I'll print whatever the answers are � or doesn't the company know the answers?

I have heard reports that sales in the new department are going very well. Are those reports true? I have no idea.

The most recent example: Shortly after the announcement that the company is dropping stitchery, I emailed the pr department with an offer and a note that basically said, "Wal-Mart has every right to drop any department it wants to, but the way it was done � the general consensus is that the company is being either unethical, incompetent, or both. Surely there's another side to the story. I'll be happy to publish anything, word for word, the company wants to send me."

No response.

Remember when Sears seemed invincible? And then Kmart? Now it's Wal-Mart, but we're seeing cracks in the facade these days.

(Note: Agree? Disagree? Did I leave anything out? Email your thoughts, on or off the record, to mike@clnonline.com. To read previous Business-Wise columns, click on the titles in the right-hand column.)

xxx