Wal-Mart story continued…

Few more from Wal-Mart story. As before, I compare continuously with Infosys from the perspective of organizations which continue to perform even when they are big.

It’s almost embarrassing to admit this, but it’s true: there hasn’t been a day in my adult life when I haven’t spent some time thinking about merchandising. I suspect I have emphasized item merchandising and the importance of promoting items to a greater degree than most any other retail management person in this country. It has been an absolute passion of mine. It is what I enjoy doing as much as anything in the business. I really love to pick an item – may be the most basic merchandise – and then call attention to it.

Many of our best opportunities were created out of necessity. The things that we were forced to learn and do, because we started out underfinanced and undercapitalied in these remote, small communities, contributed mightily to the way we’ve grown as a company. Had we been capitalized, or had we been the offshoot of a large corporation the way I wanted to be, we might not ever have tried many of those things.

For us, thinking small is a way of life, almost an obsession. And I suspect thinking small is an approach that almost any business could profit from. The bigger you are, the more urgently you probably need it. At our size today, there’s all sorts of pressure to regiment and standardize and operate as a centrally driven chain, where everything is decided on high and passed down to the stores. In a system like that, there’s absolutely no room for creativity, no place for the maverick merchant that i was in the early days at Ben Franklin, no call for the entrepreneur or the promoter. Man, I’d hate to work at a place like that, and i worry every single day about Wal-Mart becoming that way.

Just interesting to see the passion in the first place. Other thing is the advantages of being small to start, being forced to adapt and innovate. Lastly on the need to continue to innovate rather than being tied down with operational efficiency alone.

Your stores are full of items that can explode into big volume and big profits if you are just smart enough to identify them and take the trouble to promote them. I can name you a lot of retailers who were originally merchandise driven, but somehow lost it over the years. In retail, you are either operations driven-where your main thrust is toward reducing expenses and improving efficiency-or you are merchandise driven. The ones that are truly merchandise driven can always work on improving operations. But the ones that are operations driven tend to level off and begin to deteriorate. So Sam’s item promotion mania is a great game and we all have a lot of fun with it, but it is also at the heart of what creates our extraordinary high sales per square foot, which enables us to dominate our competition.

So when we sit down at our Saturday morning meetings to talk about our business, we like to spend time focusing on a single store, and how that store is doing against a single competitor in that particular market. We talk about what that store is doing right, and we look at what it’s doing wrong. Focusing on a single store can accomplish a number of things. First, of course, it enables us to actually improve that store. But if in the process we also happen to learn a particular way in which that store is outsmarting the competition, then we can get that information out to all our similar stores around the country.

This was interesting. What if the senior management sits down with one client account a week to see how it is performing and what more could be done?

Walmart Story

Just completed Sam Walton’s auto biography. The contrast of Walmart and Kmart (then and now) and story of the growth of Walton from one franchisee store to an empire made it very interesting. In case you are not familiar with Kmart, this statement from the book puts in perspective.

Compare Kmart and Wal-mart after they had both been on the street for ten years. Our fifty-plus wal-marts and elevent variety stores were doing about $80 million a year in sales compared to kmart’s five hundred stores doing more than $3 billion a year. but kmart had interested me ever since the first store went up in 1962. I was in their stores constantly because they were the laboratory, and they were better than we were. I spent a heck of lot of my time wandering through their stores talking to their people and trying to figure out how they did things.

Now the situation has reversed. I had a Kmart near where I lived – parking lot used to be empty, whereas nearest Walmart used to be full – enough said on their current positions.

Few other quotes and my thoughts below –

Say I bought an item for 80 cents. I found that by pricing it at $1.00 I could sell three times more of it than by pricing it at $1.20. I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough. But this is the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of incremental volume.

What happened was that they really didn’t commit to discounting. They held on to their old variety store concepts too long. They were so accustomed to getting their 45 percent markup, they never let go. It was hard for them to take a blouse they’d been selling for $8.00 and sell it for $5.00, and only make 30 percent. With our low costs, our low expense structures and our low prices, we were ending an era in the heartland. We shut the door on variety store thinking.

But sometimes I’am asked why today, when Walmart has been so successful, when we’re a $50 billion plus company, should we stay so cheap? That’s simple: because we believe in the value of the dollar. We exist to provide value to our customers, which means that in addition to quality and service, we have to save them money. Every time Wal-Mart spends one dollar foolishly, it comes right out of our customer’s pockets. Every time we same them a dollar, that puts us one more step ahead of the competition – which is where we always plan to be.

on competion who didn’t make it –
They were bright stars for a moment, and then they faded. I started thinking about what really brought them down, and why we kept going. It all boils down to not taking care of their customers, not minding their stores, not having folks in their stores with good attitudes, and that was because they never really even tried to take care of their own people. If you want the people in the stores to take care of the customers, you have to make sure you are taking care of the people in stores. That’s the most important single ingredient of wal-mart’s success.

What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates.

In IT, nobody is looking for luxury. Nobody goes to Cloud or Mobile because it is the new in-thing. They want to save money.