BENTONVILLE, ARK. — In his first eight months leading Wal-Mart Stores’ U.S. operations, Greg Foran learned everything he could about the business and how to improve it. He stocked shelves in Sioux Falls, S.D., worked the night shift in Wichita, Kas., and heard customer calls at the company’s call centers.
What he discovered? There is a lot of work to be done.
The president and chief executive officer of Wal-Mart U.S. shared his assessment of the business and outlined eight ways to improve it during an April 1 conference call with investors and analysts.
“We want this year to be the year of improving our stores, Mr. Foran said.
First, the company has identified opportunities to strengthen its shop-keeping skills and ensure stores are clean, well-merchandised and operated by engaged managers and associates.
“Our processes require some rework,” Mr. Foran said. “Might be overnight stocking, markdown cadence, rotation of fresh food. They are just some.”
Second, Wal-Mart’s inventory quantity and flow requires attention.
“We’ve got too much inventory in the back rooms, and our processes are not where we want them to be,” Mr. Foran said. “And that is causing some undue shrinkage and some out-of-stocks. We’ve had too many… displays, not allowing associates to merchandise their store the way they need to for their customer.”
To address the issue of inventory shrinkage, an initiative already under way at Wal-Mart involves lowering the price of a product near its expiration date, which also delivers value to the customer.
“We estimate this markdown initiative alone is delivering a retail run rate saving of over $500 million annually,” Mr. Foran said. “A small number times a big number is a big number.”
Third, Wal-Mart executives are reevaluating the store layout and design in both Supercenter and Neighborhood Market formats, from ease of navigation, all the way down to the lighting and temperature of a store. One change planned for Neighborhood Market stores is the addition of a bakery and deli.
“Some of the stores we recently opened, in our opinion, are not quite as good as ones that we had opened in previous years,” Mr. Foran said. “Customer convenience and space has been compromised.”
A fourth focus for Wal-Mart is the integration of physical and digital retail. With more than 4,500 stores, Mr. Foran said nearly 90% of Americans live within 10 miles of a Wal-Mart. This year, the retailer has expanded its grocery home shopping test to new markets.
“As we continue to expand, that equation becomes even more fascinating,” he said. “That is a competitive advantage. But both grocery home shopping and pick-up are areas where we can be better.”
As a fifth objective, Wal-Mart is leveraging adjacencies, such as gas, care clinics and financial services, to drive additional traffic to the stores.
“Consider how important pharmacy is to Supercenters and Neighborhood Markets as a traffic driver,” Mr. Foran said.
Wal-Mart’s sixth priority is to regain competitive footing in retail by offering lower prices without compromising service or assortment.
“Whilst we have pockets of leadership, in more competitive markets, our gap is too small and against some competitors, we are beaten,” Mr. Foran said. “What is more, we lost a little bit of our muscle for reacting quickly, and I also believe that we have strayed from executing some of our (everyday low price) principles consistently.”
One particular area of focus in competitive pricing is Wal-Mart’s private label portfolio.
“While we are the largest private label player in the U.S., we can and should do more,” Mr. Foran said. “Our customers love it, and it delivers on our promise, but we are not fulfilling our mission of ‘save money, live better’ if we don’t provide a more competitive price offering in some private label areas. We will sensibly lean into this opportunity, but never compromise on quality.”
Wal-Mart’s seventh initiative is improving assortment across general merchandise, fresh food, grocery and private label. Building a better assortment is both art and science, Mr. Foran said.
“You begin first of all by understanding the customer, understanding the customer decision tree,” he said. “You need to analyze the market. You need to understand opening price points. You need to understand the role private label will play. You need to understand what products are substitutable and which ones customers are loyal to. You need to then make decisions on which ones are deleted; what role seasonal plays. There’s like a 10-step process.”
With a sensible, disciplined approach to assortment, he said, Wal-Mart is well-positioned to compete with dollar stores, discount grocers and supermarkets.
Finally, Wal-Mart’s eighth priority is empowering managers and associates with more freedom and decision-making in merchandising.
“It’s not about saying you can decide exactly how you want to lay out every modular, and it’s not about saying that you can be in charge of all your replenishment because actually automated replenishment systems will generally do a better job than even your best grocery manager,” Mr. Foran said. “But you’ve got to give them enough to keep them interested, and you’ve got to give them enough to serve customers, and then they will progress through the business and one day they’ll be doing our jobs.”
In concluding his key points, Mr. Foran described what he envisions as the Wal-Mart of the future.
“Let’s play it forward two to three years,” he said. “You enter a Wal-Mart Supercenter. It is light, it is bright and it’s large. You are struck by the ease by which you can see where you want to find what you want and where you need to go.
“The fruit and vegetables are tempting, the color vibrant as is the rest of fresh, and you easily navigate through the store. The items are relevant and merchandised effectively and attractively.
“Associates work the product and are easily identifiable and are helping customers. It is clear that prices are a source of pride and are sold without any gimmicks. You are taken by the stunning value you see on an end cap, and you see a brand that you never expected to see in a Wal-Mart store and are attracted to an item that shouts value.“Customers around you are using their mobile phones to order on-line for free pickup in the store or maybe to confirm that Wal-Mart does regularly win on price. You are through the checkout quickly and efficiently, and you pick up that birthday gift that you ordered on-line as you exit the store.”