Carol Spieckerman presents her between-the-lines take on a presentation by Walmart’s EVP of Merchandising Services, Pam Kohn, as part of the Bentonville Bella Vista Chamber’s WalStreet speaker series.
At a time when most retailers are either playing a furious game of digital catch-up or plotting next-stage media strategies, land-based merchandising services might seem downright staid by comparison. In fact, many leading brands and retailers are swinging their attention back to the original point of decision, the store, and for good reason – efficient in-store execution is a vital link in any meaningful multi-channel, multi-format retail strategy.
In her presentation, Pam Kohn outlined how Walmart’s merchandising services organization is broadening its reach as it continues to build global scale. Since joining the world’s largest retailer in 2002, Kohn’s executive-level stints have spanned operations, sourcing, supply chain dynamics and specialized formats – pretty much a “best-of” list in terms of retail hot buttons.
Early in her talk, Kohn set a positive tone by sharing Walmart’s performance numbers, including its 8.6% first-quarter sales growth and 8.3% increase in operating income. Walmart’s U.S. comp sales rose by 2.6% – the largest increase in first-quarter sales in three years. According to Kohn, traffic is up at Walmart stores and all business units are showing positive comp sales, with the exception of electronics. Also, while its struggles in apparel have been widely reported, Walmart has managed to reverse the trend by posting the first positive comps in six years. The retailer can only hope that the momentum continues as fast-basics retailers such as Uniqlo accelerate their U.S. expansion and as Amazon doubles down on apparel, with an eye on offsetting the potentially fatal price deflation/shipping cost equation inherent with consumer electronics.
Although merchandising could be called the world’s oldest retail profession, Walmart’s merchandising services group, comprised of five segments, launched a little less than a year ago. The focuses of the segments support Walmart’s ongoing productivity push, and its foray into multi-format retailing:
- The merchandising execution team serves as a bridge between merchant strategy and operations, with a particular focus on maintaining a communication loop that brings store-level insights to Walmart.
- The U.S. replenishment team focuses on supply chain needs and inventory management.
- The space productivity and layout team is immersed in new stores, remodels, store expansions and prototype design across all Walmart formats.
- The small format team addresses Walmart’s more diminutive formats, including Neighborhood Market, Walmart Express and its campus locations.
- The merchandise systems team serves as a liaison between Walmart’s ISD partners and merchant teams, with a focus on the systems needs of the latter. Supplier administration and diversity initiatives are also folded under the group.
Kohn’s vision for third-party merchandising companies and the broker community also indicates Walmart’s shift toward partnership and acquired solutions, as has been the case literally with its recent run of technology purchases. Third-party providers act as “eyes and ears” extensions of the merchandise services organization, and as resources for improving execution and changing management. These companies can help stores understand changes and facilitate key Walmart goals, including on-shelf availability, modular integrity, pricing accuracy, and ensuring the productivity of features.
In her presentation, Kohn echoed many of the themes put forward to the same group late last year by her boss, Duncan MacNaughton, including how everyday low cost (EDLC) begets everyday low price (EDLP) and Walmart’s relentless pursuit of its productivity loop in general.
Kohn told an interesting story that illustrated how Walmart’s quest for efficiency can actually spell bigger business for some suppliers. She described the case of an apple farmer in Washington State who told the company that by buying only one kind of apple from him, Walmart’s’ produce department was making his business less efficient. Walmart then began to purchase all of his apples, using the non-produce varieties in products such as its private brand Great Value apple sauce and in apple cider for Sam’s Club.
The core of Kohn’s message was the five “Ps” and one “R” that define Walmart’s merchandising priorities:
- Price – Although more retailers, including J.C. Penney, Lowe’s and Tesco, are departing from their promotion-prone pasts and attempting to message everyday value (with varying success), Walmart uniquely refers to its efforts as making an “investment” in price. It’s not just a turn of a phrase – Walmart takes an enterprise-wide perspective on pricing that has it feeding cost savings from operational efficiencies into targeted price reductions on products. According to Kohn, it invested roughly $1 billion this year, primarily in grocery and consumables, which are critical traffic-drivers for the chain. As those more frequent footprints hit the stores, attention is drawn to Walmart’s broader assortments in higher-margin general merchandise.
- Product – Walmart has added “thousands and thousands” of SKUs in its U.S. stores, including its heavily-advertised, new USDA choice meat offerings. Kohn touched on Walmart’s reintroduction of key “heritage” categories such as fabric, crafts and sporting goods, including baseball and fishing products. Assortment is the name of the game, and that includes brands as well. Walmart has realized, for example, that one brand of chili doesn’t work across the entire U.S., and Kohn stressed the importance of suppliers bringing first-to-market newness and innovation to the company.
- Promotion – Although Walmart’s EDLP message is consistent across all of its mediums and environments, attention is being paid to connecting the dots with consumers across television, print, social media and its stores. Kohn pointed out that Walmart has 15 million followers on Facebook, and mentioned in passing that Walmart has a co-marketing program available to interested suppliers. At an advertising conference last year, CMO Stephen Quinn encouraged suppliers to view Walmart as an “experience platform,” and hinted at something he called a “Retail Development Kit” that would wrap paid, owned, earned and shared media into a supplier-ready package. I haven’t seen any updates since then, but clearly Walmart is continuing to look at ways to harness its massive multi-channel reach, beyond simply serving as a distribution point for products.
- People – In April, Sam’s Club EVP Linda Hefner, spoke about its merchant-focused training, retention and promotion efforts. Kohn’s mention of Walmart’s creation of a national curriculum for merchant training, and of new processes designed to incentivize buyers to stay in their chairs a bit longer, illustrated how Sam’s and Walmart are now operating synergistically. She described her greatest challenge as attempting to keep the pipeline filled with talented people who can introduce and execute great solutions. She then extended the people premise to include joint business planning with suppliers, going beyond products and trends and into multi-year planning on multiple fronts, including driving supply chain efficiencies. While she encouraged robust and candid feedback as part of the plan, she stated that Walmart will be “respectfully real” about opportunities with particular suppliers.
- Place – Duncan MacNaughton’s earlier presentation was peppered with statistics on Walmart’s on-shelf availability efforts and, according to Kohn, the retailer has seen a 665 basis point improvement so far. She then moved on to the topic that is on every supplier and retail pundit’s mind, the status of Walmart’s small-format strategy, which Kohn described as follows:
- Neighborhood Market – Walmart’s grocery store formats are 41,000 square feet on average and hold an average of 27,000 SKUs. The category focus for the format are food, drug and consumables, and Walmart currently has 183 locations, with “many more” in the pipeline. Walmart has opened its first two west-coast locations in Oregon, as well as two in Springfield, MO. Stores are slated to open in Denver, Atlanta, Seattle and Milwaukee this month. In addition to breaking ground in new markets, Walmart plans to open more of the stores in existing markets, including Northwest Arkansas, Texas and Florida. Kohn stated that Neighborhood Markets are “winning on convenience” and shoppers are hitting the stores for both fill-in and stock-up trips. In the past, Walmart hasn’t employed print advertising to drive awareness of its Neighborhood Market grand openings, but will do so as it moves forward, since the community knowledge of Walmart that has served it well in some markets hasn’t proved to be universal.
- Walmart Express – Walmart’s convenience format stores are 10-15,000 square feet in size and carry 13-14,000 SKUs. Going forward, Express stores will reflect a heavier emphasis on general merchandise and various combinations of pharmacy, fueling and financial services will be customized by-location. Kohn was quick to call the format a “test” and stated that, although Walmart is happy with the current performance, with only 11 stores, they don’t yet have the critical mass required to draw major conclusions. She noted that urban locations had been particularly well-received, and broke down the locations to include three in Chicago, three in Northwest Arkansas and five in North Carolina. Walmart’s next steps are to hit a sweet spot in terms of the number of potential locations and to arrive at optimal assortments, operational structure, store layouts and labor schedules. She zeroed in on the company’s Chicago stores as an example of how urban locations can present challenges, since big trucks don’t fit on the streets and frequent deliveries require different operational models. She called upon suppliers to bring their best thinking to the table with regard to these challenges. The Chicago market also begs for strategies and assortments that address the diversity of local markets, including the River North and Wrigleyville areas. Walmart has deployed operations and small format teams to make trips to Chicago, walking the streets, shopping the competition and listening to customers. Special attention is being paid to ensuring that the store management team is hands-on and approachable, so as to better gain feedback. And, although comparisons to dollar stores are all over the press, Kohn pointed out that the Express strategy starts by studying the customer and shopping the competition rather than watching what dollar stores are doing.
- Responsibility – The lone “R” in the group encompasses sustainability, gender diversity and health and wellness. Walmart isn’t backing off of sustainability and, despite having taken a leadership position, they aren’t complacent. Walmart launched a women’s economic empowerment initiative last year, making a commitment to source $20 billion from women-owned businesses by 2016. Kohn acknowledged that the path to becoming a Walmart supplier isn’t the easiest and that the company’s size has gotten in their way in that regard. Walmart is working on tools and systems that will make supplier onboarding more efficient, and is in the process of setting up a women-owned supplier committee that will include NGOs, internal merchants and others who will ferret out the barriers through listening sessions and implement new systems and simplified processes. The next iteration of Walmart’s better-for-you healthy food initiative and labeling program will ideally expand beyond its private brands and begin to include manufacturers’ products as well, and Kohn stated that Walmart will also support suppliers who demonstrate that they are bringing jobs back to the U.S. (Starbuck’s announced its own nod to U.S.-based manufacturing just this week).
Kohn wrapped up with some great takeaways on what it takes to be a top supplier at Walmart. Suppliers who develop a deep understanding of Walmart’s business and who are empowered by their company to make quick decisions will be in good standing. She reiterated the need for suppliers to engage in joint business planning and transparent collaboration, and to bring in upstream innovation. The days of bringing last year’s model to Walmart are long gone.
She summed everything up by stating that Walmart wants to work with suppliers who know how to leverage its scale to the benefit of both parties. As Walmart spreads its wings, its suppliers will have a chance to fly with a retailer whose reach surpasses store counts.
Want to explore what these and other retail dynamics mean to your 2013 sales and marketing strategy? Need a compelling kick-off to your upcoming sales and marketing event? Contact Carol directly to schedule a call.