Eduardo Castro-Wright, CEO of Wal-Mart Stores USA, was photographed at the new Wal-Mart Supercenter, in Elyria, Ohio in an aisle featuring products all made in the state of Ohio.
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In the kitchen section, low, faux-granite counters display small appliances in a similar open style. With this design, Wal-Mart has adapted a strategy created by its highly successful Mexican operation, Wal-Mex (which Castro-Wright used to run), that groups domestic wares by room. Wal-Mart recently told analysts that "comp" sales in the newly designed section are doing 3.33 percentage points better than in the old-model sections.
That's the future. For now, getting shoppers to change their habits is difficult. In a store in Secaucus, N.J., 470 miles (750 km) east of Elyria, CEO Scott is looking sternly at a serving platter priced at $24.99 as if it didn't get the memo. Around the pricey platter, lower-cost merchandise has sold briskly, and Scott is seeing evidence that Wal-Mart's attempt to move up the fashion/design/price ladder still has a way to go. It's not clear whether shoppers simply won't buy higher-priced stuff at Wal-Mart or, as happened in apparel, it's the wrong stuff on the shelves. "It just doesn't work," he is muttering while acknowledging the problem: "How do you move an entire company across this category?" Answer: "You've got to be smart."
To get smarter, Wal-Mart's U.S. organization is experiencing a gravitational shift. Wal-Mart has always been run from Bentonville, the defiantly hick-town global home office in Benton County, Ark. Each Tuesday, for decades, an armada of planes would fling regional bosses to the far parts of the empire. They would return Friday and report Saturday morning at the big weekly meeting that has been held since Mr. Sam was in charge. Numbers would be counted; plans would be made; orders would be cut. In the field, store managers wouldn't change their socks unless the home office gave the go-ahead.
This kind of central command and control, long out of favor in corporate America (not to mention the People's Republic of China), is now being de-emphasized. Castro-Wright, 52, is pushing executives out to where the stores are and bringing in local hires. The company has created five U.S. regions and staffed them as if they were independent $8 billion-to-$12 billion retailers. The Southeast regional headquarters is in Atlanta; the Midwest is run out of Chicago. Both regions are headed by locals, which will give the company more political clout in the sometimes contentious battles for store locations. The store-management structure has been similarly overhauled to emphasize a local touch in marketing and human resources. "It's not that it was too much Bentonville-centric," Castro-Wright says a tad defensively. "That was the strength of the company. But with our growth far away from the center, our model needed to be changed."
Wal-Mart wants to tailor about 10% of each store's merchandise to the neighborhood--a long-unrealized goal. Given the company's appetite for goods, its buyers' primary focuses have been price and logistics: How do you get millions of 20-lb. (8 kg) bags of dog food delivered to 3,500 stores efficiently? They're good at that. They're not so good at figuring out what to do when shoppers in Dallas don't buy the giant bags of dog food that they've become so expert at supplying. What if doggie apparel is just as sellable in Big D? (Stop that snickering.) "In Bentonville, you don't have a lot of dogs running around in sweaters," Castro-Wright says, almost containing a giggle.
The dog-food/dog-sweater example frames Wal-Mart's tactical quandary. The company's cultlike focus on supply-chain logistics grinds away at costs but doesn't allow it to know the neighbors. The new strategy tries to make that connection--editing for the area, offering a point of distinction. "It's going to tell the customer that we understand what they need," says Castro-Wright. "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."
There'll still be plenty of data-diving at the home office. A software program will evaluate merchandise selection in 4-ft. (1.2 m) shelf intervals every six weeks, factor in the demographics of the store's customers and spit out adjustments. One tantalizing opportunity: a smaller store, since the match between goods and shoppers' needs will be more precise.
In trying to relate better to shoppers, Wal-Mart has bumped up training to improve what it calls customer engagement. In its redesigned consumer-electronics section, for instance, the company has discovered that it can sell pricier merchandise like flat-panel televisions and GPS equipment, but customers need a little hand-holding before laying down $1,500 for a set. It's happening just as consumer-electronics giant Circuit City has laid off 9% of its sales force and replaced it with less experienced, less expensive hires. Wal-Mart says same-store sales were up 4.6% in electronics in the past quarter, besting both Best Buy and Circuit City.
The retraining is part of Wal-Mart's response to critics who accuse the company of being a repository of faceless, low-paying work. Now it's threatening to get squishy, rolling out an idea called Associates Out in Front, known as active listening in the HR trade. Store managers must meet with 10 associates each week and hear them out.
Not surprisingly, the hourlies have a lot to say. They want more flexibility--at least half are students, retirees or second-job holders--more opportunity and more attention paid. And, of course, they want more pay. The company raised wages in 1,200 stores last year and expanded its 10% employee discount on nonfoods to include produce. Long-term employees asked for an extra week's pay instead of an extra week's vacation. (They got it.) Workers with less experience asked for quarterly, not annual, bonuses if their store met targets. (They got it.) Wal-Mart, in turn, wanted help available at peak demand in the stores, meaning nights and weekends. (Of course it got it.) The company has also instituted some wage caps.
To Wal-Mart's ardent, union-backed critics such as Wal-Mart Watch and Wake Up Wal-Mart, these improvements are just crumbs from the corporate table. Wal-Mart's national hourly-wage average of $10.74 is more or less competitive with Target or Kmart, but its total package still lags behind union competitors in the supermarket industry.
The company's newest medical-insurance plan, for instance, offers associates the chance to buy family coverage for $14 to $21 a month. But the deductible is $2,000--a huge outlay for a cashier earning $17,000 a year. Wal-Mart says this Value Plan is the most cost-efficient approach for 70% of its associates, many of whom have other coverage through either a family member or the state. Fewer than 10% of its associates lack health insurance, the company says.