Inflexible Business Model Beginning to Cost Wal-Mart

Ann All

Wal-Mart has long been the 800-pound gorilla of the retail world, able to bend suppliers to its will and use its renowned supply chain to move goods like nobody's business.


Its model was based on selling stuff at low prices, driving volume, volume and more volume. Wal-Mart has largely ignored the warmer-and-fuzzier aspects of customer relationship management -- and now that indifference is starting to cost the retailer.


According to a Wall Street Journal article unambiguously titled "The End of the Wal-Mart Era" (republished on MSN Money), other retailers have gained customers at Wal-Mart's expense by focusing on convenience (Walgreen offering flu shots and school physicals), wider selection, higher quality or better service (Best Buy selling PC installation rather than just PCs themselves).


The article likens Wal-Mart to IBM, General Motors and Microsoft, all companies "that grew to enormous size and used their girth to rearrange the world to fit their strengths," but whose tremendous success blinded them to emerging competitive threats.


The Internet has contributed to Wal-Mart's declining fortunes, says the article, noting that "the once-stunning compilation of 142,000 items found in a Wal-Mart supercenter doesn't seem so vast alongside the millions of products available on the Internet." And Wal-Mart's efforts to polish its own online presence have largely fallen flat.


The article also cites Wal-Mart's decision to back off on its unpopular mandate for its suppliers to use RFID as a sign of its declining influence.


A TIME article makes many of the same points but focuses more on what Wal-Mart is doing in an effort to overcome its challenges. Among its strategies: scaling back on store expansions; tweaking designs to make stores more energy efficient and aesthetically pleasing; adopting a more decentralized management model; and improving employee relations.


Perhaps the most significant challenge for Wal-Mart is in trying to tailor its merchandise mixes to the demographics of different store locations. Says Eduardo Castro-Wright, CEO of Wal-Mart Stores USA:

It's going to tell the customer that we understand what they need. We not only understand what you need, we respect your point of view. We want to be your store of choice because we understand you better than anyone else in the marketplace.

This will involve plenty of advanced data analysis, notes TIME. While Wal-Mart is no slouch in this area, to date it has largely used its data to improve its supply chain rather than its customer service.


Wal-Mart isn't the only retailer that wants to harness business intelligence and analytics to improve its performance. Says Greg Buzek, president of IHL Consulting, in an IT Business Edge interview:

Retailers are realizing that their profit typically comes from about 10 percent to 20 percent of their customers -- their core customers. So they need to understand who they are, what they buy and always have that merchandise in stock.

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