Why Wal-Mart Is Winning In A Losing Industry
Wal-Mart employs 1% of America, 2.2 million people worldwide. The largest retailer in the world, its employee head count is larger than the population of several small countries.
Recently, Wal-Mart reported earnings per share of $1.00 versus expectations of $.96, according to Thomson Reuters analysts; revenue of $117.5 billion; 1.4% growth in U.S. same-store sales; and digital sales that were up 63%.
While Wal-Mart is celebrating, other major retailers are struggling. Macy’s, the nation’s second-largest department store, had its share price plummet 17% after weak Q1 earnings. For fiscal 2017, the retailer is projecting a 3.2 to 4.3% decline in sales. J.C. Penney saw a 15.3% decline following its poor earnings report. And Nordstrom, revered for its customer service practices, saw an 11.3 % drop after its Q1 results, while Kohl’s slumped nearly 8% after disappointing financials.
The retail sector overall is showing a 0.8% negative price performance, propped up only by the success of Wal-Mart, Target, and Home Depot. It is a dismal picture of a major industry, and the fallout could severely damage the economy as stores continue to close their doors and people lose jobs.
Why is Wal-Mart winning when most of the retail market is tanking? Two reasons:
1. The company has stayed true to its core purpose.
2. It continues to effectively execute to fulfill its purpose.
Sam Walton started Wal-Mart in 1962 with one simple goal: to “help people save money so they could live better.” Despite its current size and history, the organization has never lost sight of this purpose. Even today, helping its customers save money is central to everything the retailer does, 24 hours a day.
While many other retailers and businesses may be focusing on how they can improve their profit-and-loss statements (P&Ls), Wal-Mart is obsessed with how it can save more people money. Its focus is laser sharp and unwavering. But for most businesspeople, this simple yet powerful shift in focus is uncomfortable. It means moving away from the safety of what they learned in business school or management books. It requires shifting from managing a P&L to managing a business.
Wal-Mart improves its P&L every time it is able to save a customer money. If the store does this consistently, patrons are able to put their savings toward other areas of their lives that are important to them — a child’s education, a family vacation, retirement savings, or a rainy-day fund. Because of Wal-Mart’s ability to effectively fulfill its purpose, customer loyalty is strong and personal.
Customers don’t walk into Wal-Mart expecting to find assistance in every aisle, employees who will carry their shopping bags to their cars, or expensive artwork on the walls. They expect to find the lowest prices on products they can grab off the shelves quickly. That is Wal-Mart’s purpose and its brand promise — nothing more, nothing less. It is simple and unique to Wal-Mart.
Outside of the slight brand edge Nordstrom has been able to garner, other retailers of Wal-Mart’s size are interchangeable for most customers, who tend to buy the products they need from the store located closest to them. Contrary to that tendency, people go to Wal-Mart because of they see a specific value.
Adding value for customers or clients creates meaning for employees. The more people working for an organization understand how the company contributes positively to customers, their communities, and the world, the more they are engaged to help. This same principle applies for customers, too. Communication is key.
To ensure that people around your business are aligned with your organization’s core purpose, communicate a clear, simple, and undeniable reason it exists, beyond making money. If you are struggling to determine what your organization’s purpose is, ask:
What void would be left for customers or the community if my business were to disappear today?
A simple, meaningful, and well-communicated purpose is core to Wal-Mart’s success, and its purpose serves as the company’s north star, aligning organizational execution and ensuring that the retailer continues to drive in the right direction.
Every action Wal-Mart takes — at every level of the organization — supports the retailer’s purpose. From the no-frills corporate offices to its requirement that all employees, even executives, empty their own trash, Wal-Mart makes a point of keeping its costs down so it can sell products for less. Stores resemble warehouses, outfitted with only what is needed to hold and sell products. Extra trimmings are simply not part of Wal-Mart’s formula.
When I speak about Wal-Mart in my keynotes, I frequently get comments about how difficult vendors find it to deal with the company. Whether they are being beat up on price or held to strict delivery and quality standards, few vendors are singing Wal-Mart’s praises. But strict vendor management is critical to Wal-Mart executing in line with its purpose. Every additional cost it incurs must be passed on to customers so the retailer remains profitable.
High prices and inventory, excessive product returns, and disruption to the supply chain all increase the cost of goods sold. This, in turn, impacts Wal-Mart’s ability to fulfill its purpose, and if it fails to fulfill its purpose, it becomes like every other retailer. Customers begin to shop elsewhere, sales and profits decline, and Wal-Mart joins the list of retailers struggling to keep their heads above water.
Wal-Mart’s purpose requires tightly controlled costs and executional excellence from every employee and every partner. Running smooth and lean is the only option. If pennies matter to customers, they need to matter even more to Wal-Mart and its employees.
Because Wal-Mart has a clearly defined purpose and a culture that supports that purpose, employees, job candidates, and customers all know what to expect when they arrive. This expectation helps drive the right people to the business. If you are looking for a high-end shopping experience or posh working environment, you won’t be knocking on Wal-Mart’s door. However, if you want to save money or are passionate about helping others do so, Wal-Mart is a good fit.
Creating genuine alignment in any business comes down to effective marketing to customers and job seekers alike. At Wal-Mart, for example, if new recruits are personally cost-conscious and frugal, they will stay focused on what is important to them and ultimately to Wal-Mart and its customers. If they are not, they will quickly stray when the opportunity arises, execute on the wrong things, hold Wal-Mart back from its true potential, and experience less success than those who are properly aligned within the business.
Believing what the organization believes is key. This translates into honest and personal connections and a sincere interest in helping fulfill the intended purpose. From an execution standpoint, fulfilling Wal-Mart’s purpose means selling more products to more people for less, becoming more profitable, and continuing the cycle.
Sam Walton rallied his employees with, “If we work together . . . we’ll give the world an opportunity to see what it’s like to save and have a better life.” This is meaningful to people — both employees and customers. When I think back to my high school and college days of working in retail stores, I can only remember the mantra of “sell more.” It is not surprising that none of these retailers — large or small — are still in business.
Walton changed the face of retail through his commitment to balancing purpose and execution in his business. If Wal-Mart promised low prices but ran a poor business with substandard execution, the brand promise would be worthless. Customers would fail to believe in or trust the business and start shopping elsewhere. Wal-Mart leads the pack because of its focus and commitment to its purpose and its ability to out-execute its competition in line with that purpose.
Published on Forbes, 31 May 2017
For more information, visit PurposeMeetsExecution.com and check out my new book Purpose Meets Execution: How Winning Organizations Accelerate Engagement and Drive Profits.
Leave a Comment