Supermarket News asks a question that is probably on a lot of people's minds these days: "If Project Impact is succeeding, and shoppers still love a bargain, then what's ailing Walmart?"
While [Walmart] officials express strong confidence in Project Impact, particularly for the long term – citing multiple financial and retail successes that they insist are only just beginning – disappointing sales and store traffic results in recent months have prompted the chain to tweak some tactics and reverse course on others.
The first casualty may have been Eduardo Castro-Wright, who was seen as the heir apparent for the top job at Walmart and has been the architect for Project Impact, but was replaced recently as the boss at Walmart US. This chart, noting the first-ever annual decline in comp store sales, shows the problem:
SN notes several things that could be mere implementation problems with Project Impact – SKU rationalization that may have gone too deep (or simply cut the wrong SKUs), a failure to recognize regional differences, not being aggressive enough in emphasizing winners in the 'Win, Play, Show' strategy. Such errors are inevitable in the rollout of any new strategy, and can be tweaked along the way.
But some of the problems may be more fundamental. Walmart has sought to increase its margins recently and has allowed traditional supermarkets to close the price gap. "Walmart is still a low-price leader but it's not the low-price leader," noted retail analyst Burt Flickinger.
In
another article analyzing Project Impact in The Hub, Chris Hoyt says that Walmart has allowed its operating costs to rise to a point where it no longer holds an advantage over its traditional store rivals.
The result is a significant reversal of the advantage that Walmart enjoyed in the early years: Now at 24.8 percent for Walmart versus 23.2 percent for Kroger, Walmart's gross margin is at a serious 1.6 percentage point disadvantage versus Kroger's — a difference just too big for recession-pressured competing shoppers to ignore for long.
The object lesson of the Walmart-Kroger pricing scenario is that, for whatever reason, Walmart allowed itself to deviate from its core strategy ("Always Low Prices") and thereby enabled a major competitor to get its nose under the tent.
Another way that Walmart has deviated from the strategies that built its success, according to Hoyt, is in using 'criteria to guide the Win/Play/Show segmentation, rather than relying on hard numbers, objectively applied:
How does one know why (or why not) one's category is placed in the Walmart "Win" quadrant? That's exactly the point. While Walmart does publish the criteria for its "Win" quadrant, it leaves this relatively open-ended, couched in subject-to-interpretation phrases like, "Consumers see Walmart as a credible destination" or "Volume contributes to price leadership position," and so forth.
In other words, there is no longer a fact-based approach upon which one can rely. While there are obviously certain basics that must be in place even to be considered for Walmart's "Win" quadrant, by leaving the final decision open to certain subjective evaluations, Walmart cleverly sets-up a competition among suppliers.
In this environment, "winning" will almost certainly include the extent to which category suppliers are willing to go "over and above" to help Walmart achieve its objectives. Translation: When all else is equal, adding incremental marketing or merchandising support can make the difference between being assigned to the dark-and-damp "Show" quadrant versus the sunny-and-eternally-productive "Win" quadrant.
Walmart has, in short, become much more like the retailers it has been creaming over the past few decades, a point not lost on the competitors, such as Kroger's CEO:
"Walmart is a lot more consistent with a traditional grocery-supermarket operation than it is consistent with what Walmart used to do," Dillon said. "It uses a lot more feature items. Sometimes those features are on for more than a week, but it's [still] feature items, and when you operate that way there may be items that come down in price and get a lot of publicity, but there are others that go up in price that don't get that much publicity. We see the behavior as a lot of marketing noise."
I think part of the problem is that Walmart has so changed the retail landscape that it is now the Establishment rather than the upstart, and as such it now occupies the dangerous middle. Once, that was the turf occupied by mainstream department stores, with upscale stores like Nordstrom and Bloomingdales on one side and Walmart, Kmart and Target on the other. But today, Walmart's old positioning has been taken over by Aldi and Sav-A-Lot, as well as dollar stores.
It's instructive that the
latest rankings of US retailers by NRF, while still showing Walmart miles ahead of any competitor, also record big increases by the dollar stores: Dollar General moved up from 35th to 28th, Family Dollar from 56th to 45th, and Dollar Tree from 76th to 61st.
And it may not be simply that Walmart has lost its low-cost leadership, but also that, because of Project Impact, they
look like they've lost that leadership. Part of the intent of the project was to look more upscale – could it be that they succeeded too well? As an executive stated, the changes "came at the cost of a sense of ‘promotional intensity' inside the stores."
The problems that people are seeing and discussing at Walmart may be only partly a result of Project Impact. Or maybe there are no real problems at all (let's not forget that the chart above shows $20b in operating income – who wouldn't like to have problems like that?) But let's make Project Impact the focus of a two-part exit question:
Has Project Impact been a success? Will it be successful in the long run?Labels: Kroger, Project Impact, SKU rationalization, Walmart