September, 2004

Fruits of Thought

A Visit To Bentonville

If you want to visit the most powerful retailer in the world, you don’t go to New York or Chicago, London or Paris, Tokyo or Shanghai — instead you go to Bentonville, AR. By creating a mini air force to send his executives out into the field, a progressive thinker by the name of Sam Walton made it possible for Wal-Mart to grow while keeping its headquarters — and its heart — in rural Arkansas.

Today, though, anyone can get on a commuter jet and fly there in a few hours. You fly into a beautiful new airport with all the modern conveniences, and you see Sam’s old Arkansas being gradually supplanted by a new town.

I visited last month and was there for a bit of history — the opening of the first Starbucks in Bentonville. I’m sure the lattes are frothy, and there is no question that Wal-Mart is impressive, but just possibly that Starbucks may threaten Wal-Mart’s future more than any supermarket chain ever will.

What is so impressive about the Wal-Mart culture? Six things stand out:

  1. An absolute cultural dedication to keeping costs down. Very high level executives have simple offices without windows. Every suggestion to improve a store is viewed in the context of its ability to assist Wal-Mart in offering lower prices. The executives never lose sight of the value proposition Wal-Mart offers: Low Prices.
  2. A focus on store-level employees as the heart of the operation. I was invited to the big “Saturday Meeting” — and just the fact that it is on a Saturday and the top people are there tells you that the executives do not view store-level employees as the peons who have to work weekends. Over and over, I heard individual store-level employees being brought to the attention of all the headquarters executives. Those executives never forget that to a customer, that greeter at the door is Wal-Mart.
  3. Merchandising is the focus. Whatever the problem may be, the culture says that the answer is to sell more. The heroes are the cashiers who manage to sell more stuff at the cash register, the department managers who sell more by remerchandising their stock, and the buyers who find new products that wow the consumer. Whatever its problems, the organization responds en mass by saying “let’s not get distracted, let’s just sell more.”
  4. Mastery of information. At the Saturday meeting, all information is current as of midnight Friday evening. If questions come up, the answers are not deferred to next week or next month, but rather are answered within the time frame of the meeting. It is a point of pride for every executive to know what is going on with his department or area of concern. No decision should be made based on outdated information, nor should it be deferred because updated information isn’t available. What a difference from the endless rounds of meetings typical of so many large corporations.
  5. The emphasis is on error correction. So many companies research to death and never act. Wal-Mart puts out imperfect stores — then treats every error as a mandate for change. Every time someone pointed out a problem, the handheld Blackberries started to whirl. Whether it’s the CEO pointing out a problem or the department manager complaining she could have sold more of something if she wasn’t out of stock, every error is treated as a challenge.
  6. Strong vendor relationships are vital. Many retailers think of suppliers as a necessary evil — in fact many don’t really think about them at all. But Wal-Mart assigns vendors a powerful role in managing procurement, and executives never stop thinking about vendors. The notion of a “Wal-Mart Family” in which vendors play a powerful part is transcendent throughout the company. And the notion that Wal-Mart can gain at the expense of its suppliers is far from acceptable. For produce shippers accustomed to buyers seeing procurement in an “Us vs. Them” format, it is a shocking change. This is not to say that it is easy to work with Wal-Mart; they are incredibly demanding. Few produce companies are really prepared to handle the demands of directly supplying Wal-Mart. But those companies that rise to this challenge make themselves far better organizations than they once were.

One marvels at what Wal-Mart has become. Yet as impressed as I was with my visit to Wal-Mart, I keep thinking about the beautiful homes being built around town. Then there’s all the high paid salespeople moving to Bentonville to be in close contact with Wal-Mart and the new shopping center being built, which the locals whisper will have a Saks Fifth Avenue, a Nordstrom or a Nieman Marcus.

Being headquartered in Bentonville was an obstacle for Wal-Mart in the sense that travel was difficult, but having executives that lived and worked in the old Bentonville was an inestimable benefit to Wal-Mart for it meant that the lives and shopping experiences of its executives were not very dissimilar from its customers. With the success of Wal-Mart — it is said that Bentonville has more millionaires per capita than any city in the U.S. — that is no longer so true.

It will be easy for executives to forget how they got where they are. Indeed they might start to hold the Wal-Mart customer in a little bit of contempt. It is possible that executives will start to build stores to impress their own spouses and children and load them up with extra costs that challenge Wal-Mart’s low cost shopping proposition.

Wal-Mart has enormous resources and almost limitless potential, but the obstacles any business must face are not always the obvious ones. If I were the CEO of Wal-Mart, I would worry more about that new mall than about any grocery chain out there.  pb