Business Credibility Once Lost is Very Difficult to Regain
Under the inspirational leadership of Sam Walton, the merchandising juggernaut known as Wal-Mart rose from the backwaters of Arkansas (of course, all of Arkansas is backwater) to do what was thought to be impossible: dethrone mighty Sears to become the world’s largest retailer. Yet, the retailing giant is suffering through its second straight year of declining same-store sales.
Many are suggesting that Wal-Mart is on the backside of its glory and may never again recapture the sharp-edged, highly focused blitzkrieg of marketing dominance that virtually destroyed Sears and left other competitors in the dust.
With almost 9,000 stores in 15 countries, over $400 billion in revenue, along with $24 billion in operating income, Wal-Mart remains clearly the dominant retailer in the world; and no one is suggesting the company is in trouble (at least not now). The sheer size and purchasing leverage of Wal-Mart means that no matter how many mistakes and miscalculations the current management may make, it will continue to slog on for decades. But it does seem there are cracks in the foundation of Wal-Mart that have slowed growth and opened the door to threatening competition.
Play it Again, Sam
Those who follow Wal-Mart are of the general belief that the slowing growth of the company is due to current management moving away from Sam Walton’s basic principles and winning formula for success.
Mr. Sam (as he was referred to in the company) had a basic value formula – “everyday low prices for the American working class” – from which he did not divert till his dying day. In doing so, he exhibited the most basic traits of successful leadership: A clear, easy to understand vision; constant communication of the vision and consistent adherence to it. It was not until Walton’s death at age 74 that management of the company began to shift away from this formula of success.
As reported by Miguel Bustillo in The Wall Street Journal (Feb. 22, 2011), the new management of Wal-Mart began to respond to the rise of competition from such companies as Target, and the myriad dollar stores, discount grocery chains and online retailers, by trying to do what these other companies were doing. Instead of being the competition, Wal-Mart began chasing the competition. This is the classic mistake that management of successful companies – especially second and third generations of management – often make. They began to move Wal-Mart away from the fundamental vision that created its success.
Wal-Mart began to forfeit its unique market niche and connection with the customer by falling in line with traditional retailers. The company moved away from the message of “everyday low prices” and began raising prices on some items, while promoting “deals” on others. Wal-Mart reneged on the promise of Sam Walton as a place for one-stop shopping with across-the-board low prices all the time. This strategy confused and frustrated the traditional Wal-Mart customer. As former Wal-Mart executive Jimmy Wright said, “The basic Wal-Mart customer didn’t leave Wal-Mart. What happened is that Wal-Mart left the customer.”
Not satisfied with a near death-grip on working-class Americans earning less than $70,000 dollars a year, the management of Wal-Mart violated the second part of Sam Walton’s vision by attempting to move “upscale.” This created a double-whammy of negative results. Shoppers higher on the economic scale were not attracted to Wal-Mart and the traditional customer of the company began to literally be priced out of the store.
It is worth repeating Sam Walton’s fundamental vision for the company: “Everyday low prices for the American (now read ‘worldwide’) working class.” When the company diverted from this vision and implemented a copycat strategy, is it any wonder that growth began to slow?
This criticism of Wal-Mart management does not mean that large, successful companies should obstinately cling to the status quo and resist innovation and change. Such an approach can be even more destructive to a company’s future. Any company – large or small – should constantly seek out innovation and lead change. But this should be done within the scope of its fundamental vision.
Sam Walton was the epitome of the consummate entrepreneur who is never satisfied with the way things are and constantly seeks change and innovation to make things the way they should be. Clearly, considering the competition he faced in building Wal-Mart, Mr. Sam would have failed had he not been the way he was. However, he did so within the framework of his basic vision for the company. Mr. Sam understood – obviously better than current management – that what you seek to achieve, i.e. “everyday low prices” should be inviolate, while how the vision is achieved is constantly open to change and innovation.
The current management of Wal-Mart has admitted that their diversion from the company’s basic vision was a serious mistake and has vowed to recapture Mr. Sam’s winning formula. Yeah, sure! It may be that the size and power of the Wal-Mart franchise will provide the resources and time to do so, but the odds of it happening are slim. For one thing, bureaucrats, not entrepreneurs, are now running Wal-Mart. These bureaucrats have already shown a proclivity to copy and follow, not innovate and lead. They have also shown a failure to understand the difference between strategic vision and tactics. But what is more troublesome for Wal-Mart management is rebuilding the company’s credibility. Once the core vision of a company has been compromised, it is very difficult to regain. Actions by the current Wal-Mart management have frustrated and confused not only the employees and suppliers of Wal-Mart, but even more critically, the customers.
Few companies had as much trust and credibility with the customer than had Wal-Mart. The customer knew what to expect and what they would get. Once that bond of trust and credibility is broken, it is very difficult to repair. If you win with the customer by specifically differentiating yourself from others and by appealing directly to their needs, it is problematic that the trust and credibility can be maintained when you begin to copy what others do. Sam Walton would be sad. And what really made him different is that he would be sad both for the company and the customers.
And the Moral of the Story …
If you can make it better, then fine, but if it ain’t broke, don’t fix it. The phenomenal success of Wal-Mart proved that the basic vision and focus of Sam Walton to “provide everyday low prices to the American working class,” was the driver of that success. Change and innovation should always be sought to buttress the vision, but not to change it. There is a good leadership lesson to learn here: You can tinker with the toys, but not that you are in the toy business.