Management 10th Edition by Richard Daft

Exercise 12

Walmart Part Three: Planning
Extreme Makeover: Walmart Edition
After years of putting on a yellow happy face and dressing in familiar blue smocks, Walmart stores are getting an extreme makeover. For millions of Walmart customers who've witnessed the big reveal at grand reopenings across the country the changes are dramatic. Store aisles are wider, and the new color palette is vibrant. Assortments are tidy and merchandise is marked with bigger, bolder signage. Towering shelves are gone, and so are associates' old blue smocks.
The unveilling of walmar's next-generation store, part of a strategic plan dubbed "Project Impact." Announced in 2008, the nationwide remodeling effort aims to improve the Walmart shopping experience and increase sale. According to the project's rollout schedule, 70 percent of U.S. stores will undergo an upgrade by the end of 2012; the remaining renovations will wrap up in 2014.
Project Impact was an idea born of the recent financial crises. As the U.S. economy sagged, higher-income consumers began shopping Walmart to take advantage of low prices. The influx of more affluent customers hastened the push to revamp stores, and management concluded that better atmospherics could transform economy-conscious visitors into loyal Walmart customers. The opportunity set off a flurry of planning, and Eduardo Castro-Wright, vice chairman of Walmart stores, took charge of the initiative.
According to Castro-Wright, an important statistic loomed large in the planning of Project Impact. "Customers on average spend only 21 minutes in the store," the vice chairman proclaimed. "If you don't make it easy for them to shop during those 21 minutes, the possibility that they are going to buy from you is much, much smaller." With the clock ticking on various reconfiguration options, Castro-Wright's team slashed 15 percent of store inventory, lowered shelves for an open line of vision, and shuffled departments for easier shopping. The changes are unmistakable: Walmart's pharmacy now sits at the front-middle of stores, maximizing demand for $4 prescription drugs; grocery essentials have shifted to the back, prompting customers to browse merchandise on their way down the aisles; and apparel racks are re-positioned at the center, signaling a head-to-head competition with Target. Walmart's super-promotion aisle, "Action Alley," has disappeared.
The cut in merchandise signals a sea change for Walmart. While a 15 percent reduction in stock-keeping units (SKUs) allows for cleaner looking stores, the change involves risky tradeoffs for Walmart's merchandising strategy. With fewer products in stores, Walmart must be more selective about which products to carry, and more committed to selling in higher volume. To increase store sales using fewer stock item, Walmart is loading up on hot gadgets such as Apple's iPhone 4 and iPad. The home entertainment section is adding 3D TVs. The crafts aisles are filled with popular scrapbook materials. Groceries are expanding Walmart's Great Value store brand consumables. But many product lines, Such as walmart's flagging "cheap chic" designer apparel, are getting the axe.
As highlighted in Wlamart's official planning documents, Project Impact keys in on ten important words. "Save money. Live better." Is the company motto expressing Walmart's mission. "Win, Play, Show" are keywords that guide merchandising assortment decisions. "Fast Friendly, Clean" are words for the customer's in-store experience. According to Steve Banker, analyst for ARC Advisory Group, Walmart's planners are seeking to boost store efficiency by connection in-store merchandising with back-end logistics:
Win-Play-Show is really a merchandising strategy has beneficial synergies with logistics. In a "show" category, the company carries fewer SKUs than it has in the past. A "show" strategy is a defensive approach chat that product selection but does not cause a buyer to go somewhere else for a product. In "win" categories, price leadership is deemed absolutely critical, along with having more pronounced and well-positioned displays in the stores. This program has led to a reduction in the number of SKUs available in stores, something the folk, in logistics always in stores, something the folks in logistics always appreciate. Walmart supplements and expands the product assortment in its "show" categories through Walmart.com, where customers can order products online (Steve Banker, "Walmart's 'Win-Play-Show' Assortment Strategy," Logistics viewpoints , 2009).
Bill Simon, executive vice president and chief operating officer at Walmart, confirms Banker's point. "Because we've rationalized SKUs and focused our energy on 'win play, show' categories, and because we have less inventory in the stores, it's easier for us to find and stock the shelve, and order the products that we need from the distribution center. And so reduction in inventory has resulted in higher in-stocks, not lower in-stocks"
Sleeker streamlined logistics may indeed be a focus of Project Impact, but customer satisfaction is the ultimate goal: "The net effect," Simon remarks, "is you open up the customer space, you improve the shopping experience, and you provide access and visibility to de­partments in the store that were previously difficult to shop."
What started the decision-making process that led to the overhaul of Walmart's U.S. stores? What common errors in decision-making could thwart the success of Project Impact?