Here’s a story that I found fascinating. Wal-Mart apparently can’t keep its shelves stocked because it doesn’t have the employees to do it:
It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.
Other problems cited include long checkout lines, lack of customer assistance, and general disorganization.
And the problem may actually be getting worse:
Last month, Bloomberg News reported that Wal-Mart was “getting worse†at stocking shelves, according to minutes of an officers’ meeting. An executive vice president had been appointed to work on the restocking issue, according to the document.
At the supercenter across the street from Wal-Mart’s Bentonville, Arkansas, home office, salespeople on March 14 handed out samples of Chobani yogurt and Clif Bars. Thirteen of 20 registers were manned — with no lines — and the shelves were fully stocked.
Three days earlier, about 10 people waited in a customer service line at a Wal-Mart in Secaucus, New Jersey, across the Hudson River from New York, the nation’s largest city. Twelve of 30 registers were open and the lines were about five deep. There were empty spaces on shelves large enough for a grown man to lie down, and a woman wandered around vainly seeking a frying pan.
Wal-Mart’s restocking challenge coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Bill Simon, the company’s U.S. chief executive officer, said in a Feb. 21 earnings call.
Wal-Mart stock has risen sharply over the last couple of years after being flat for most of the last decade. The formula that the company hit one, increasing the number of stores while decreasing the number of employees, does not appear to have been a happy one. Except for the major stakeholders: the members of the Walton family purportedly own 43% of the company’s stock and I presume that stock dividends are their main source of income. That’s a powerful incentive to cut costs whatever the outcome.
Meanwhile my Costco has full shelves, lines even with every register open and suffers only from a shortage of parking spaces. Of course they don’t treat their employees like shit. So maybe there’s a connection.
@michael reynolds
The nearest Costco is 300 miles (in any direction). I would pass a Walmart about every 50 miles. Why is Costco passing up the opportunity to increase their profits?
. . . because Costco targets a more affluent demographic.
@TastyBits, I hope that didn’t sound snooty; its just that Costco’s strategy is tied to locating itself near higher-end residences, not be every-fifty miles.
Several years ago, Walmart started pushing its house brand. Name brands were stocked sporadically, and it finding all the brands on your grocery list was impossible. I stopped shopping there for groceries, and many people I know did the same. They reversed the policy, but I have not returned.
Here’s a Walmart story for you. Imagine a main drag bisected by another road. Where the roads cross is a lovely bit of open space fronting a river. There’s a nice area there where local artists have carved dead trees into some interesting sculptures. They’re quite striking. Now, from the intersection of the two roads, south on the main drag at about a 5-7 minutes driving time is a Walmart superstore. North of the intersection at about a similar 5-7 minutes driving time is another Walmart superstore. Guess where Walmart wanted to put a new superstore? That’s right. Smack at the intersection in the open space fronting the river.
It wasn’t successful. The locals raised such hell at the planning meetings, that that project was abandoned.
@PD Shaw
That was my point. Target has a similar demographic. Walmart shoppers are concerned about the lowest price. Service is secondary, but empty shelves or missing brands are a problem.
For some products, the prices are half. These are for household goods. It is Chinese crap, but when the choice is between cheap Chinese crap and nothing, the crap wins.
Costco does target a more affluent membership. You have an upfront membership fee which in itself discourages lots of people. Also the Costco approach requires that you not buy a roll of toilet paper but 400 rolls of toilet paper at once. If nothing else, space limitations in smaller homes make Costco less attractive.
But we were talking employee shortage. Costco doesn’t seem to suffer, most likely because unlike Wal-Mart they pay people enough to actually support human life.
.Costco doesn’t have one of these
My general sense is a little different from Dave’s. I think Wal-Mart pioneered a certain type of logistics/distribution, which other chains, not the least of which Target, copied. Its not only lost a certain advantage over time, but its competing for a similar labor pool, for which it no doubt does need to compensate better to maintain.
We had a new “destination” super-sporting goods store open up locally a few years ago. A kid out of high-school, with just so-so grades and uncertain about the economy and college, decided to apply for a stockboy position. After taking the qualifying test, he expressed surprise to the interviewer that all that algebra actually came in handy. The interviewer replied that he should see all the middle-aged men coming out of the exam booth, crying.
I’m haunted by that story. What’s going on here? Is the economy such crap that a new, exciting company can be highly selective. Is algebra a prerequisite for traditional manual jobs? Should I be happy for the kid, finding a good job in retail, at least for now? A job with an animatronic Abraham Lincoln?
Does Wal-Mart need more Algebra-competent stockboys?
Age discrimination is illegal.
I don’t think that explanation comports with the facts, PD. As the article says, they’ve added stores and reduced employment. They’re spread thin enough that it’s driving business to its competitors. I don’t believe they’re having a problem filling open jobs. Contrariwise, I think they’re cutting staff to the bone to the detriment of sales.
I’m open to other explanations but I think they’re trying to maximize the dividend in the near term.
Is the economy such crap that a new, exciting company can be highly selective.
Duh.
I think it was last year that Walmart decided to get rid of its greeters as a cost saving measure. Greeters were one of the signature features of the stores. I also remember reading that Walmart’s sales declined in recent years due to competition from even cheaper dollar stores, which have done quite well recently.
I also remember reading that Walmart’s sales declined in recent years due to competition from even cheaper dollar stores, which have done quite well recently.
Yeah, that’s another sign of a growing economy, the growth of stores dedicated to cheaper products than Walmart.
I have found that people who dislike Walmart also dislike Walmart shoppers. Actually, despise would be a better word. Many of these same people claim they are trying to help the people at the lower end. They will pat themselves on the back for the good work they are doing, but to have a Walmart shopper in their presence is an affront.
Since Sam Walton’s death, Walmart has been getting worse. I think @Dave Schuler is correct about the stocks and dividends driving business decisions. I suspect that this started after Sam Walton’s death.
Walmart is not going to be replaced with Costco, Target, Macy’s, Sears, etc. It is going to be replaced with Big Lots, Dollar General, etc.
@Tastybits, I think this ownership group has spent a lot to become “greener,” which probably means a lot to people who don’t shop at Wal*Mart.
@Dave, I would like to see labor comparables; I have these for Costco versus Walmart:
Walmart:
Square Footage per employee: 335
Revenue per employee: $211,000
Costco:
Square Footage per employee: 600
Revenue per employee: $620,000
If you read through the link, you’ll see that Walmart has tried to reduce its labor force by reducing its product selection, which resulted in consumer backlash. In the article you link, a customer is pissed-off that products he used to get at Wal-Mart, he now hast to get at Target, but he still goes to Wal-Mart also. The company is supposed to be a one-stop convenience store for all your basic needs (something none of its competitors really try to do), which is far more labor intensive than its competitors. That means hand stocking several brands of paper towels while Costco simply dumps pallets of one brand off a forklift and lets the customer do the rest.
Frankly, I’ve not seen a good labor situation in many of the larger stores I’ve been to the last year or so. Best Buy was the most annoying because it had one register open while it had dozens of salespeople wandering the aisles asking me if I needed any help. Wal-Mart was least annoying since they have self-check-out that few seem to want to use.
Costco and Wal-Mart aren’t comparables. Wal-Mart is a big box store. Costco is a membership warehouse store. Of course Costco’s employee per square foot count will be lower. They have a very different business model. The real comparison is between Sam’s Club and Costco.
The comparable for Wal-Mart is Target. They have basically the same business model: one stop shopping, everyday low prices.
BTW, the revenue figures suggest that Tasty is absolutely right. Dollar Stores are doing better than Wal-Mart, Target, or Costco.
I think some people are missing some basic business concepts here. As a preamble: there really are only a few (and this is a bit stylized) business models out there, but they each come with certain characteristics and metrics. One – and very powerful – is low cost production. You get to compete on price and your potential served market is huge. Think Wal-Mart, or steel production.
Then there is high tech. High margins and rapid product innovation rule supreme here. Markets may be large, if specialized. Think Apple, or high tech medical devices, or cutting edge software.
Niche marketing has so many facets you can’t even begin to describe it, but you must be true to the question “why do people buy my product” and act accordingly organizationally, product positioning etc. You are slicing and dicing consumer’s preferences.
Skip the middle man is another model. Think the internet, or going around any 2-tier distribution model.
Last is “high quality.” This market gets high prices and margins based upon performance, features and reliability, but suffers from the market pyramid…….only those at the top will really pay up. Potential served market is limited. Think Cartier, Porsche etc.
I used that one last because of the Costco vs Wal-Mart discussion. PD, because he is diplomatic, caveated his statement as potentially snooty. Michael was lost in the wilderness. PD hit it on the head. Different served markets. Different buying motivations. Costco serves a higher end market. Wal-Mart is everyman – competing on price.
Every real businessman goes through this learning curve. In the proverbial man on the street interview everyone will tell you they want high quality and service (or even “buy American”)……and will pay for it. Then the majority of them march off and buy on pure price, period. Wal-Mart figured this out first in the large retail venue. Ignore that reality, and you are out of business. The only mom and pops that survive are tiny, catering to the mom and pop buyer.
So Michael was blathering on about living wages etc, but Wal-Mart knows its customer base, and knows it can sacrifice service and quality for price. This is not a value judgment, but a cold hard fact.
Remember when Cadillac ruined its brand by going everyman? Now its reinventing its brand and quite frankly is making some damned good cars.
If there is any one thing I could impart to people here who want to think like businessmen or investors in companies, it is to always and everywhere ask the most fundamental question that must be understood: “why do people buy this product?” You best nail it, or you will be in trouble. Everything you do in business follows. Organization, investment, manufacturing footprint, supply, product positioning and price, how you go to market and on and on.
I like to poke Michael in the ribs. But the truth is, if I understand it correctly, he has perfected this approach and understands it in spades, in combination with his writing talent, in what he does for a living. Why he seems to be blind to it outside his field of expertise flummoxes me.
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I was on a call while posting and missed Dave’s last comment.
He is absolutely correct. As a byproduct of average consumer financial stress, Dollar is doing better as this is an even further downmove from Wal-Mart. You see it in the ultimate tiered market as well: eateries.
No, Michael, the world isn’t just fine.
I think I’d divide that into two questions:
1. Know who your customer is.
2. Know what you’re selling.
It has been a frequent source of amazement to me how many companies do not know the answer to #2.
Dave
We may be dancing on the head of a pin……but, yes, #2 follows #1, and it better be congruent or your ass is grass.
I make a living by acquiring companies that don’t know #2, or even #1, and conforming them. I wish it was more exotic and I could think of myself as a rock star. But that isn’t reality. Its just fundamentals and experience. However, as you note, it may not be “artist” material, but it is amazing how target rich the environment is.
@Dave Schuler
1. Know who your customer is.
If Walmart shoppers became new Costco shoppers, many of the existing Costco shoppers would become ex-Costco shoppers. The high entry fee you discussed also keeps the riff-raff out. Few of the Costco shoppers speak grammatically incorrect, go to Monster Truck shows, are overweight, watch American Idol, like NASCAR, etc., and they like it that way.
I’m not convinced that Target has fully become a one-stop shop yet; can I get my lawn fertilizer and my sudafed there? Perhaps it is in the process of becoming one.
If I read this information comparing the income statements of Target and Wal-Mart correctly, Target has fewer employees than Wal-Mart:
Target:
Square Footage Per Employee: 660.8
Sales Per Employee: $186,202
Wal-Mart
Square Footage Per Employee: 287.1
Sales Per Employee: 194,388
An MBA might discern greater truths from the income statements summarized in the link, but it appears to me that the big difference is that “Target has roughly $280 of sales per SqFt of floor per year, whereas Wal-Mart has 670 $/SqFt.” That goes to what my wife hates about Wal-Mart, its an aesthetically, unpleasant, crowded experience. The Super Target next door has clear aisles and fewer shoppers.
PD
The penultimate statistic in retail is sales per sq foot. However, it is mixing concepts to ask if that statistic is superior for Wal-Mart vs Nordstrum.
Apples to apples, and then compare sales/sq ft. Sales/sq ft is an operating statistic. It tells you nothing, with a nod to Dave’s comment, who your customer is or what you are selling. Anyone at Wal-Mart comparing sales/sq ft at their stores to Nordstrom should be fired. And, btw, they don’t.
I think I’d divide that into two questions:
1. Know who your customer is.
2. Know what you’re selling.
It has been a frequent source of amazement to me how many companies do not know the answer to #2.
I think the most important conceptual thing I’ve learned from this blog came from Schuler writing about auto makers and their markets. I just assumed the market was people buying cars. WRONG. The (primary) market for the auto makers is auto dealerships. That was a nice hit from the CLUE BAT right in the middle of the forehead. Conceptual lessons like that are extremely useful.