Expense control is part of Walmart culture too
Walmart makes a big deal out of its culture, and as a result it invites criticism whenever changes are made to long-standing company policies that are somehow seen as diminishing the culture. That was the case again this week when reports surfaced that people greeters working the overnight shift had been reassigned other duties.
The move was interpreted as yet another blow to a corporate culture that is often derided as not being the same as when founder Sam Walton was alive. While people greeters might have been one of Walton’s ideas, the elimination of this function from the wee hours of the morning should hardly be viewed as another blow to corporate culture.
If anything, the move is evidence the company’s culture is alive and well because the decision was motivated by a desire to control expenses, which is the very foundation of Walmart’s business even though the three beliefs regarded as central to the culture are respect for the individual, service to customers and striving for excellence.
One of the ways Walmart strives for excellence to it can serve customers is by controlling expenses. Last fall, Walmart committed to investors that it would reduce its expense structure by 100 basis points in the coming years and that means a lot of things once considered sacred will be on the table. As a result, night shift greeters have been given new responsibilities that add greater value to the enterprise. See point two about service to the customer.
Nevertheless, there are those who attempt to view these type of moves through some type of “what would Sam do” lens, which is a pointless exercise. He might have eliminated the greeter position entirely after analyzing the costs associated with their wages and benefits. Walton was about as cheap as they come, or so people who knew him have said, and the same was true of David Glass, who his successor Lee Scott once said made a career out of saying, “no.” It was only under Scott’s tenure as CEO that the company’s expenses structure swelled, largely out of necessity as the company had to pay more for real estate and build nicer stores that were demanded by communities even as it raised hourly wages and improved benefits to deflect relentless criticism of its policies.
Now, under the tenure of CEO Mike Duke, Walmart is looking to regain its momentum by taking a hard look at expenses. That seems to be more in line with the company’s culture than clinging to the notion of having employees standing by the entrance of stores to welcome the handful of customers trickling in at 3 a.m.
EDLP: It’s not as easy as Walmart makes it looks
JCPenney got a lot of love this week from investors and the media after the company’s senior leadership unveiled a simplified pricing and promotional strategy that sounded an awful lot like another well-known retailer’s success formula.
The revelation from JCPenney would be transitioning to a simplified pricing and promotional strategy sounded an awful lot like EDLP, except CEO Ron Johnson called it “fair and square.” Either way, JCPenney plans to take prices down about 40% to the level where most of its sales occur anyway because the company has essentially trained its shoppers to never buy anything until it is marked down.
Johnson deserves credit for pursuing a strategy that is a radical departure from JCPenney’s recent past, and the highly promotional pricing approach employed by its direct competitors. Fair-and-square pricing can be a very alluring proposition to those who have never attempted to implement it because the approach promises simplicity and cost savings to operations. However, even Walmart doesn’t practice EDLP in its purest form, as Rollbacks and other limited duration pricing events are required to add some promotional intensity to the store experience.
Now JCPenney wants to do something similar with its fair and square pricing, month-long promotional events and selective features a few times during the month. All in the name of restoring price integrity. It sounds good on paper, and it looked even better in person during an elaborate unveiling presentation that several veteran analysts told Retailing Today was unlike anything they had ever seen before, but what JCPenney is likely to learn the hard way in the months ahead, as other have before it, is that there are some nasty withdrawal symptoms associated with kicking the promotional habit. And JCPenney had it bad before Johnson arrived as CEO last fall after leading Apple’s retail operations for more than a decade. According to Johnson, JCPenney spent $1 billion marketing 590 unique promotional events in 2011, and beginning Feb. 1 it plans to shift to monthly promotions that it will spend $80 million apiece marketing.
It amounts to the most dramatic shift a retail company has attempted to execute since Walmart put Eduardo Castro-Wright in charge of U.S. stores and John Fleming in charge of merchandising. The strategies they pursued and how they pursued them took Walmart down a path from which the company is still attempting to recover.
As for JCPenney, the company needed to do something and Johnson’s strategy may ultimately be the right one. Simplified pricing could be an effective way to differentiate itself from direct competitors (Macy’s and Kohl’s) who run such a mind numbing level of promotions that their customers too never buy anything at full price. In fact, plenty of merchandise at those chains arrives on the floor with no sales ever having occurred at the so-called “regular” price.
However, in the near term the company’s shoppers are likely to find the transition quite confusing and considerable sales volatility could be in store. Perhaps that’s why the day after the big reveal of the new strategy at a follow-up meeting to provide a financial update the company announced it would no longer report monthly sales or even provide quarterly sales or earnings guidance. Walmart did the same thing a few years back at the height of the Project Impact disruption in the name of focusing investors on the company’s long term performance.
Joint business planning on Linda Hefner’s mind
Sam’s has enjoyed accelerating same-store sales growth the past two years, and to keep that momentum going chief merchandising officer Linda Hefner is looking for a few good suppliers to commit to a new joint business planning process.
Actually, she would like as many suppliers as possible to participate in the new initiative that involves an unprecedented degree of collaboration. And to ensure the company’s suppliers understand how Sam’s defines joint business planning, or JBP, and what is expected of them should they decide to pursue the opportunity, Hefner is scheduled to speak on the topic at an upcoming event held by the Bentonville Bella Vista Chamber of Commerce on March 22 at 9 a.m. at the John Q. Hammons Center in Rogers, Ark.
“The topic of joint business planning is very important to the supplier community in Northwest Arkansas so we are thrilled that Linda has decided to join us to provide additional details to our Walstreet members,” said Tammy Thurow, VP marketing and membership with the Bentonville Bella Vista Chamber of Commerce. “A lot has changed at Sam’s since Linda spoke at our Walstreet member event two years ago, and she has played a key role in the growth Sam’s has experienced since then. It will be great to get an update from her on the progress at Sam’s and for suppliers to hear more details on the JBP process.”
The chamber has a special membership tier called Walstreet that is dedicated to suppliers and service provider companies who have a business relationship Sam’s Club or Walmart, according to Thurow.
Those who can’t wait until March 22 to hear from Hefner first hand on the topic of JBP can read about it in the February/March issue of Connecting Northwest Arkansas available next week. Or, the truly impatient can request a PDF of the article by emailing [email protected].