“Walmart” Lecture notes

Team 5

김예린, 박상언, 이윤서, 조리치, 황지호, MIQUEL LIRON XAVIER, VIDAL SERRA JOAN

Intro

Walmart is a traditional behemoth which dominates the brick-and-mortar retail market.

However, the emerging powerhouse, Amazon, continues to lead the rapidly growing

ecommerce retail industry. What are the threats Walmart has faced? What are Walmart's

survival strategies to stay competitive and relevant in the era of the 4th Industrial

Revolution?

Brief history of Walmart

Walmart’s success was based on its location and low-cost operation. Sam Walton opened

the first Walmart store in rural Arkansas in 1962. Walmart’s founding vision was to provide

low-cost goods for rural populations, with an initial target customer of people living in towns

of 9,000 or less. By 1969, Walmart stores were primarily located in small towns of

5,000-25,000, not in the center of the big city. This initial strategy focusing on small towns

helped reduce store costs while avoiding direct competition with large retailers, providing

momentum for growth. Walmart pursued synergy by adopting an "inside-out radial expansion

strategy," expanding outward in concentric circles by establishing new stores and

warehouses near existing ones.

Following its core mission: "Save money. Live better.", Walmart minimized operation

costs by keeping wages low to achieve its “everyday low cost” goal. By doing so, Walmart

created low margins but enabled it to gain large market share. It became the biggest retailer

in the US in 1990 and, by 2000, was the largest private employer in the US.
Changing architecture of retail

However, the emergence of online retailing forced changes to Walmart, the giant

incumbent firm in the retail company. One of the fast-growing online retail competitors was

Amazon. Amazon became the dominant player in the ecommerce sector. Ecommerce,

defined as any sales conducted online, was the fastest growing segment of the retail sector,

with revenue growing at a 12.1% annualized rate over the decade leading up to 2018. This

impacted the type of business in the retail sector.

Over 2009-18, discount stores declined markedly but supercenters rose to replace

discount locations. Why did this happen? The difference between discount stores and

supercenters is grocery. Discount stores are large stores without grocery, but supercenters

are large stores with grocery. The penetration rate of ecommerce varied significantly across

product categories. Music, video, books, and magazines accounted for the highest share of

online retailing sales, followed by electronics and apparel, while food and beverages (F&B)

had the lowest share. As grocery offerings became a critical piece of large retailers’ product

offering, Walmart illustrated this trend. Walmart closed its discount stores outright or

converted into other formats like supercenters. Walmart also changed the footprint of

Walmart stores. Square footage per store and square footage per employee increased, and

this growth paralleled an increase in revenue per square feet.

Amazon grew bigger and bigger and its revenue surpassed Walmart’s estimated US

ecommerce revenue. As ecommerce started to expand overall, Walmart got worried. Until

2014, Walmart believed that their competitive advantage lies in its low cost. The fast growth

of online retail competitors threatened Walmart’s status and it seemed like keeping costs as

low as possible, including low pay, was ultimately harmful to the company.

Walmart could provide low-cost goods by fixing many costs but driving down variable

expenses (i.e. the amount of labor in the stores) led to some spotty execution and

operational issues. For example, it damaged in-store conditions and stock levels. A
repeating pattern of out-of-stocks and long cash register lines prevented customers

shopping the store again.

The top management team of Walmart realized its traditional business model is not

sustainable and productive anymore. In 2015, Walmart announced that it would reorient

themselves around customer service, going so far as “adding customer satisfaction as a key

incentive metric”. Rather than considering brick-and-mortar and ecommerce as separate

projects, Walmart shifted to become an “omni-channel retail player”, designed to merge

online and offline shopping and executed some digital transformation.

“For a company like Walmart, we’re now a tech company as much as a retail company.”

-Kathleen McLaughlin, Walmart Chief Sustainability Officer and Walmart Foundation President

Three strategic goals of Walmart

To succeed in online and offline both, Walmart aimed to make 3 big strategic shifts.

1) Employee management: training, wages, and other compensation

2) Ecommerce technology: digital infrastructure and strategy development

3) Automation technology: robotization of retail

In this presentation, our team will focus on the first goal, the “employee management”.

Walmart’s first goal – employee management

1. increase in wages

To improve the in-store experience, Walmart first invested in the workforce. In February

2015, Walmart invested $1billion in wages and training for employees. This investment

increased starting pay for frontline associates to $9 per hour in 2015 and to $10 per hour in

2016. It also increased existing workers’ pay to get a minimal wage raise ($0.15 / hour or

1.2%).

2. training through the Pathways program

safety drills. Also it relied more on ad hoc knowledge transfer. But these new Pathways

training programs were designed to be delivered through (1) video-based lessons, (2)

computer-based exercise, and (3) in-store application of the skills after learning them. The

program not only covered softer skills like customer service, merchandising, teamwork and

communication but also business skills like basic economics and math. Its goal was to give

associates transferable skills and provide the foundation they need for a successful career.

Successful completion of the Pathways program could lead to three paths:

● becoming an hourly supervisor

● specializing in a department (e.g. deli)

● continuing in the current role

3. more authorities provision to supervisors for employee management

Walmart hired more managers and pushed more responsibility onto department

managers, not just for store performance but for people management. It also gave them

more authority, changing scheduling practices to create more cohesive teams and training

them for a new role. Hourly supervisors were responsible for holding their teams

accountable and should complete a five-week series of workshops and on-the-job exercises

designed to equip them with managerial skills.

4. running academies

Walmart launched Academics to support this transition for supervisors and department

managers. Training focused on business and people management, delivered over 2-6

weeks, depending on the participants’ role at Walmart. Academies were situated in or near

Walmart stores, with the training delivered across both classroom study and in-store

application of learnings.

5. welfares - parental leave for associates & education

Walmart announced non-wage benefits like 10 weeks paid maternity leave and six weeks

of paid parental leave. But activists criticized the policy, which only extended to full-time
workers, because estimates suggested that up to 60% of Walmart’s associates worked

part-time.

Furthermore, Walmart announced that it would provide funding for associate’s or

bachelor’s degrees for employees in specific degree programs through partnerships with

three universities.

Conclusion

From a short-term perspective, investing such a lot of money might be considered as a

waste or liabilities. But well-trained human resources are precious assets in the long term.

Walmart is investing for the future.

Discussion Questions

Q1. Why does Walmart make a big strategic shift? What actions do Walmart implement to achieve the

first goal(employee management)? What actions did Walmart take to change the way employees are

managed and incentivized?

Q1.1. Why does Walmart want to make the big strategic shift to become an "omni-channel retail

player," according to the case? How does Walmart's stakeholders - shareholders, employees, &

customers - respond to the decision?

Q1.2. To achieve the goal related to 1)employee management(training and incentive provision), what

does Walmart do? What actions do you like and find necessary the most and what you don't?

Q3. Based on your experience, what do you like and dislike about the grocery shopping? Design

Sogang Mart, a new customer experience, to improve the customer pain and/or reinforce the gain (be

creative!).”