LETTERS FROM THE GLOBAL PROVINCE

GP 13 December 2006: Wal-Mart on the Rack

The Biggest Story Never Told.  We’re amazed, every single week, to find out that the business media have not sunk their teeth into the Wal-Mart story.  It’s our domestic Iraq:  the most important company in the world is in deep trouble.  If it goes south, the U.S. economy will go from the merely troubled to a hard landing place in the tank. 

Perhaps some of you can remember Engine Charlie Wilson, CEO of GM during the fat years, when things were so good that the chief cook and bottle washer did not need to be a braintrust.  In those years Peter Drucker could say profound things about General Motors and always be right.  Later General Eisenhower put Wilson in as Secretary of Defense, at that time another position that did not require an acute ability to connect the dots.  He’ll always be remembered for his remark in some Senate hearings that were later badly misquoted: “Because for years I thought what was good for the country was good for General Motors and vice versa.”  Well, Wal-Mart is infinitely more important to our country right now than GM ever was, and the health of our country is very much the key to Wal-Mart’s survival. 

We keep an eye on Wal-Mart at Watching Wal-Mart, and we’re surprised at the number of readers who visit there and advise us of other things Wal-Mart is trying.  We are not, incidentally, antagonistic to the Big Walrus: we shop there, enjoy its many pluses, and wonder when it will cure its ample weaknesses.  It’s been good and bad for America and the world.  China should be buying shares in it, since it accounts for a healthy amount of that nation’s surplus. 

The Market’s Run Dry.  In the U.S., Wal-Mart’s customers have run out of money, and the company is feeling the pinch.  That’s a worrying trend, not just in the U.S. but worldwide.  “The top 1% of the population holds 40% of global assets.”  See “Study Finds Wealth Inequality is Widening Worldwide,” the New York Times, December 6, 2006, p. C3.  “The net worth of the world’s typical person … was under $2,000.”  The biggest reason for this, of course, is that the world’s developed nations plus China and India have pulled way ahead of the underdeveloped nations.  But “among Americans, wealth is distributed about as unequally as it is around the globe,” so even within the developed nations, the wealth gap is troubling.  For more on this study, see the World Institute for Development Economics. 

The bottom line is the yeomanry, the lower income population Wal-Mart serves, is in trouble.  In the U.S., real income of these classes has been stagnant or declining since we moved into the 21st century.  They are running out of both time to shop and money to buy anything when they can get out to the store.  This has revolutionized the nature of retailing, and we are witnessing strange events such as the turmoil at Wal-Mart, the resurgence of department stores, the troubles of specialty stores, the evaporation of sales on Black Friday, and the rise of sales on Cyber Monday.  Troubled in its core business, Wal-Mart is trying to crawl deeper into financial services, something many of our industrial companies have done as their main businesses hit a wall. 

Order Takers.  But Wal-Mart’s own peculiar history compounds its sagging fortunes.  You will remember that its mantra over the years has effectively become “cheap at any cost.”  Founder Sam began in small towns where the denizens were overcharged due to lack of competition, bought his merchandise cheap, and achieved monopoly positions within his out-of-the-way marketplaces.  As time moved on Wal-Mart has become the pre-eminent supply chain company, finding a 1,000 ways and a 1,000 places to get it cheaper.  But quality has suffered, especially under Sam’s successors.  You often simply won’t find what you want on the shelf, and what’s there is not very good.  Solid merchandising and marketing skills simply have never flourished under its banner. 

This is further complicated by the fact that its headquarters is located in Arkansas.  Despite its sourcing in China, Wal-Mart is not really a global company for a global age, and its forays in several developed countries have flunked.  Most recently it pulled out of Germany which has several more sophisticated discounters.  Probably its best hope in this regard is Eduardo Castro-Wright who comes out of its very successful Mexican operations and has been given the task of putting some tiger back into the U.S. stores.  It is time, in fact, to put a real global merchandiser in charge of the whole company. 

When talking about selling, we like to distinguish between real salesmen and order takers.  Real salesmen help you make up your mind; order takers chew gum and wait for you to come to the cash register.  The top dogs at Wal-Mart are order takers. 

Kill the Messenger, Fatten the Flacks.  As its marketing flounders, Wal-Mart has tried a whole mess of things, and it’s to be congratulated for trying.  It just fired Julie Roehm, a 35-year old piece-of-work who had not been on the job very long.  It canned as well her pick for ad support , one of the Interpublic advertising agencies.  She was clearly too much for the Boys in Bentonville, and she mistakenly thought her mission was to change the place.  Indeed, a lot of her initiatives truly did seem wacky, and her hiring may have been misbegotten in the first place, but the style of her leaving does not hint that the company is on message, or on strategy.  It’s implied by Wal-Mart that she may have been dismissed for accepting favors from vendors, but, reading between the lines, one can tell that the long knives had been out for her for a while.  Her person and her get-up-and-go messages were too strong for the taciturn. 

But the part of the abortive marketing department that has survived can make one wonder about the health of the company as much or more than Ms. Roehm’s departure.  Edelman, a publicity shop from Chicago, has been stoking the PR fires for Wal-Mart with a few successes and several failures, the most notable of which was a fling with Andrew Young, former UN ambassador and Mayor of Atlanta.  He stumbled a bit in his comments as a corporate spokesman and was outed for being politically incorrect.  Edelman’s uneasy and mammoth doings for Wal-Mart are chronicled in “Behind the Scenes, PR Firm Remakes Wal-Mart’s Image,” Wall Street Journal, December 7, 2006, pp. A1 and A10.  A giant in the industry, Edelman has always been the firm you hire if you are a large business on the defensive in the public arena and stagnating somewhat on the business front.  Its clients include Microsoft and Pfizer.  If we remember rightly, it did major amounts of solid PR work for Phillip Morris during that company’s long strategic retreat in the smoking business. 

What’s instructive here, we think, is that Edelman does a good if expensive defense.  But maybe it does not have the successful mindset to help a company mount an offense.  Wal-Mart has to remake itself, get very much closer to its consumer customers, and add a lot more value to its selling proposition in order to deserve a place in the workingman’s budget.  That includes getting a host of good products back on the shelves that simply don’t fit into the simplistic purchasing patterns of the Company’s buying office. 

Getting off the Defensive.  A slew of our larger capitalization companies are Wal-Mart knock-offs that have lost their marketing skills and hope that sheer size will see them through the tosses and turns of the global economy.  It won’t. 

One of our most interesting clients often says to us, “When you don’t know how to get results, you resort to process.  When you know what you are up to, you skip all the makework and do real things.”  In many venues, we’re going through that now.  Companies are painfully going through the tried and true motions that sort of worked in the past, retracing their footsteps, with the hope that they can beat a path into the future. But artful publicist and scratchy songwriter Bob Dylan had it right: “The times they are a-changin.”  You can’t be doing the old stuff. 

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