Originally run October 17, 2007

Over the past few weeks, IT and the general press have written a spate of articles on Wal-Mart – its RFID experiment, its customer service decisions and its sales shortfalls and rising operational costs. CIO magazine pondered how Wal-Mart lost its IT Mojo. Baseline magazine summarized the results (or lack thereof) of Wal-Mart’s RFID initiative. Then the New York Times jumped all over the company’s decision to eliminate any customer service phone numbers from its web site. Lee Scott is probably starting to feel like Britney Spears by now – he can’t make a move without some comment from the media. But in truth, when one looks at some of the decisions made over the past two years, Wal-Mart management has made decisions that seem logical, but that also can be characterized as “rookie mistakes “.

Back in 2004, Wal-Mart appeared to be an unstoppable juggernaut. Analysts were predicting the company might wind up with 33% of the total US non-durable consumer goods spend. That’s a LOT of spend. Wise retailers began to realize that whether or not this was inevitable, that still left 67% for everyone else. Thus was born the notion of a “post Wal-Mart world “. In a post Wal-Mart world, retailers could not differentiate on operational efficiencies, or selling commodities. Wal-Mart owned that space.Retailers like Target, who made hay by selling really cool stuff cheap (or somehow making commodities seem cool), Costco who made warehouse shopping chic, and Whole Foods, who gained its customers trust by being at the forefront of eco-friendly and healthy, started knocking the ball out of the park by NOT being like Wal-Mart.

In the same time period, Wal-Mart made those “rookie mistakes “. Moving to higher priced (and higher margin) merchandise to appeal to a more upscale customer had the same effect it’s always had. It alienated the core constituency and didn’t draw a lot of new blood into the store. And no one has ever expense-controlled their way to sustained profitability.

So, we now know that huge as it may be, Wal-Mart is not an unstoppable juggernaut. And it too, has to learn how to thrive in this new world. Over the past six months, amidst some continued missteps, we see signs of maturity. Wal-Mart is taking steps to regain its mojo, and just like it helped in the past, IT is a key enabler in helping in the new era.

How can IT help? First and foremost, it has to facilitate nimbleness. The business has to be nimble and IT has to be in step with that. Our five-step program would look like this:

• Continue the move to packaged solutions – Development times are just too long, and hardware is now powerful enough to support even a giant like Wal-Mart. Other retailers got smarter and their intelligence is reflected in packaged solution functionality. Wal-Mart should use it.
• Use customer data to inform assortment planning, visual merchandising, forecasting and replenishment – It’s not enough to just toss POS data out onto Retail Link and expect category captains and cpg vendors to take it from there. A retailer has to control its destiny. If you’ve got the biggest data warehouse in retail (and perhaps in the world) USE IT.
• Change the focus of RFID from the distribution center to the stores – The best use of RFID data in the supply chain is the “free read ” you get when a case of merchandise is moved from the back room to the selling floor. This free read should be sent to the vendor. POS data arrives too late to be truly actionable, unless the vendor has finished goods inventory nearby, awaiting shipment. It’s far more realistic in most cases to use actual movement onto the floor combined with historical POS as the demand trigger.
• Segment stores by category, not just in total – Over the past 2 years, reports of two different types of store segmentation have been reported. The first round had stores segmented into 6 types of customers. The second round had them in 3 types. The truth is, the organic food buyer is very different than the apparel buyer and is also likely different than the “regular ” grocery buyer. With all the market basket and credit and debit card data Wal-Mart has available, surely this can be identified.
• Continue re-focusing on existing customers – RSR’s most recent research on loyalty and business intelligence highlights an old retailer truism – the best thing a retailer can do is increase average transaction value of existing customers. We know that notion was behind the 2006 marketing campaign, “Look Beyond the Basics “. That campaign backfired, but improving merchandise adjacencies will create the same impact. Once again – it’s all about market basket analysis, and Wal-Mart has all the tools at its disposal to have the deepest knowledge of its customers of any retailer in the world.

It’s ironic. This is the same advice we give to all retailers, including those in the mid-market. But to succeed in a world of its own making, Wal-Mart has to make the same kinds of shifts. We have no advice to give to Britney Spears (beyond considering a long vacation), but our data has a lot to tell retailers of all sizes and shapes. We hope it’s helpful.