Special delivery from Wal-Mart

by Eric Schroeder
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Doug McMillon, president and chief executive officer of Wal-Mart


When Sam Walton opened the first Wal-Mart store on July 2, 1962, he envisioned a concept where customers could achieve one-stop shopping. As the concept grew, he located stores close to Wal-Mart’s regional warehouses, and distributed through its own trucking service. He also sought to buy in outsized volume, a strategy that allowed Wal-Mart to offer discounted name brand merchandise.

A little more than 50 years later, new leadership at Wal-Mart is helping guide the Bentonville, Ark.-based company forward in an environment where the evolving consumer is in search of more than just low prices.

“I really believe our future is bright,” Doug McMillon, president and chief executive officer of Wal-Mart, said Oct. 15 during the company’s annual meeting for the investment community.

In his opening remarks, Mr. McMillon identified price, assortment, experience and access as the four key “dimensions” for Wal-Mart going forward.

“We have always been known for assortment, and in the future we’ll be known for assortment,” Mr. McMillon said. “It’s an important dimension.”

He also stressed that “price matters.”

“We serve value conscious customers all over the world,” he said. “Everybody wants to save money. They come from all walks of life: high income, low income. Some of the wealthiest people in the world became wealthy because they knew how to save money. Value matters and we have E.D.L.C. (everyday low cost) in our DNA; it’s in our core. We care about expense leverage. We care about expense management and we always will.”

In terms of experience, Mr. McMillon said human relationships matter. While he believes Wal-Mart is doing a good job on this front, he said he still sees room for improvement, and the way associates serve customers will be changing. Most importantly, they’ll be more equipped, he said.

“The way the check-out process works is going to change,” he said. “Mobile will have a huge impact. Our data scientists, our engineers will play a role in customer service. They’ll invent new ways for us to save people time and money. And customers will have an experience at Wal-Mart that exceeds their expectations. That’s always been our goal and that will be our goal going forward.”

Finally, Wal-Mart will be firmly focused on access. Consumers not only are able to visit the physical Wal-Mart stores, they are able to shop the stores digitally, and Mr. McMillon said the company is exploring the many ways in which it can accommodate its customers.

“Convenience means different things to different customers at different times,” he said. “Sometimes getting something delivered to your home is convenient but other times it’s not convenient at all. Sometimes customers want to shop in a store; other times a pick-up experience is more convenient.

“We’ll give customers the choices they want and need by integrating digital and physical retail in ways that please and energize them. There’s a growing consensus that the future of retail is not just in-store or on-line. The winners in retail will be the ones that can put them together and frankly, we think we’ve done the harder part.”

Outlets for growth

It may seem like there is a Wal-Mart on every corner, but the retailer continues to look for ways to grow. Plans call for 60 to 70 new or converted supercenters in fiscal 2015, and around 180 to 200 new neighborhood markets.

Greg Foran, president and c.e.o. of Wal-Mart U.S., said the company must be thoughtful about growth, focusing on quality, not quantity.

“We need to make sure that we exceed our customers’ expectations in these big boxes, and it’s important for us to really think about these big boxes, how it looks, how it performs, what departments we grow, which ones we can track, and what services we add.”

Wal-Mart also is exploring different ways to serve its customers. Last year, the company launched a “tethering” concept. The initiative allowed the company to deliver products from its supercenters to its smaller format store. Judith McKenna, executive vice-president and chief development officer of Wal-Mart U.S., said early results have shown the strategy “clearly wasn’t going to give us a sustainable model either economically or from the operational complexity that it introduced.” As a result, she said Wal-Mart has called a halt to the pilot.

But other initiatives are showing promise, she said. Wal-Mart’s grocery home shopping trial in Denver continues to go well, and customer demand continues to build, she said.

“You can order your groceries on-line and have them delivered to your door … We also introduced the ability for customers to pick up those groceries from any one of our 36 stores in the Denver area,” Ms. McKenna said. “Not only are we learning a lot through our operating model here, but we’re also very focused on what the customer experience is. It’s really critical in a service like this. To date, we’re really encouraged that 85% of customers have rated this 4 or above on a scale of 1 to 5 for customer satisfaction, but we’re continuing to learn a lot.”

Another pilot project is a Wal-Mart pick-up grocery operation in Bentonville. Ms. McKenna said customers may order on-line from a selection of 10,000 items and arrange to have them delivered directly to their cars by an associate at a predetermined collection time.

“They never even have to unclick their seatbelts or leave the car,” she said. “We pick the items for them from a 15,000-square-foot mini warehouse attached to the drive-thru location and that allows us to fulfill a customer order in just two hours or any given time up to three weeks later, whichever is the most convenient for them. It’s all about choice and ease for them.

“It’s very early days. We’re only three weeks into the trial open to the public, and we’re still restricting access to it to make sure we get the operation right, but we’re really encouraged by the response of customers. The ability to pick up groceries and the convenience it gives them has been fantastic, and I have to tell you the most feedback that I had has been from busy moms who no longer have to get themselves out of the car, or, more importantly, get their kids out of the car at the same time. It is a test we’re continuing to learn, but every day and every week, we’re building on that learning.”

Focus on fresh

Inside its stores, Wal-Mart is just as active, particularly in the fresh department.

“Fresh is a big focus for our business this year,” said Duncan Mac Naughton, executive vice-president and chief merchandising officer for Wal-Mart U.S. “Over the past year, we made significant improvements across our fresh business, and this is evident by our 40 basis points improvement in our market share according to Nielsen Perishable Data. It also shows up in our customers’ confidence in their perception that Wal-Mart can in fact provide consistent quality produce for their families.”

Mr. Mac Naughton said Wal-Mart understands produce is the traffic driving area in its stores, and as such, is committed to long-term programs that will continue to improve the quality and the consistency of produce.

“Last year, we talked to you about ‘Would I Buy It’ program,” he said. “This training program was designed to give our associates in-store expectations on excellence and
standards that we expect to see for our customers when they walk into our store. Essentially, this program put our associates in the customers’ mindset, they just ask our associate that said, if you’re not going to buy this product, the customer’s probably not likely to buy it either.”

He said Wal-Mart has worked to get more local produce on the shelf, and this year the retailer relaunched a focus on fresh, including Wal-Mart’s “Guaranteed By Me” program.

“We’re improving every facet of our fresh business from operational components, from product flow to forecasting, to associate training and development within our stores,” he said. “The ‘Guaranteed By Me’ ensures that every piece of produce that we place on our shelves is the quality that our customers expect. With this initiative, we’ll also focus on giving more days of freshness to our customer. They have a better eating experience, and it lasts longer in their refrigerator.”

Asked why Wal-Mart was relaunching the fresh program after just launching the program last year, Mr. Foran said evidence showed some of the initial stores were becoming “too cluttered” in fresh.

“I want to be able to walk in to the store, and I want to be able to see what we want to sell to the customer,” Mr. Foran said. “If you’re going there at the moment, you expect to see apples because it’s the beginning of the apple season. I don’t want to have to stumble over two pallets of Coca-Cola and three point-of-sale signs directing me to buy Halloween candy when I want to walk in to produce.”

He added that while Wal-Mart does a “reasonable job” with fruit, he’s concerned about the retailer’s vegetables, and particularly green leaf vegetables.

“I think that is a real cue for many customers on freshness,” he said. “You know, what do you like in asparagus? What’s your broccoli like? What’s your cauliflower like? When I pick that iceberg lettuce and I look at it, is it one that I’m going to buy or I’m going to start to see it brown on the edges because we haven’t rotated it well enough in the store. Now some of that may be an issue with product coming in? Maybe. Haven’t had enough time to get in to it.”

He also indicated that perhaps Wal-Mart carries too much merchandise.

“When I get in to the backroom and I can tell you, if you want to know how well you do in fresh, just go to the backroom first, that will tell you whether we’re on track,” he said. “Many of our stores get seven-day deliveries. I should not see apart from first thing in the morning or whenever the delivery window is … I should not see much stock out the back. I want that product rotated through. I suspect and I don’t know because I’ve only been here a short time, we might be carrying one, two, three days too much inventory in produce.”

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