Fast Company

Ten Steps to Turn Around Wal-Mart

Wal-Mart has succeeded as a highly-evolved culture of the tangible by creating a dazzlingly efficient logistics operation, shaving cent-splinters off an item, and driving down overhead. This is the whole relentless apparatus that brings us "everyday low prices" and it is made up entirely of business practices you can touch, feel, and measure. And no one is better at it than they are.

But when it comes to the culture of the intangible -- an increasingly crucial aspect in today's marketplace of corporate self-presentation and perception -- Wal-Mart's skills are unrefined, to say the least. Its history has been both cynical and tone-deaf, and its present behavior is in many ways even worse. For years, Wal-Mart's management ignored legitimate complaints, ranging from criticism about the company's lack of employee health-care benefits to labor conditions in its captive offshore factories to the very real social cost resulting from the demolishing of traditional Main Street business centers and the pandemic death of mom-and-pop retailers.

Wal-Mart has offered a classic case of corporate denial, with management refusing to pay heed even as its stock has dropped more than 25% since Lee Scott became its CEO in 2000. But as of very recently, it does seem as though some folks at the top have are in fact paying attention, a sudden arousal triggered by a perfect image storm: The documentary The High Cost of Low Prices, a leaked and magnificently callous internal health-care memorandum, and the chronic jabbing of activist groups like Wake Up Wal-Mart and Wal-Mart Watch. The company is responding with an ill-conceived blast of defensiveness -- in their mind it's a long-overdue gust of truth-telling -- that will eventually be memorialized as a business-school case of strategic and communication blundering; their Iraq. Elements of the disaster include a Website (WalMartFacts.com) that's bloated with corporate speak, clearly manipulated testimonials from thrilled "associates," and histrionic self-defense; newspaper ads shrilly defending their policies; and gauzy TV commercials on the Sunday morning programs that attempt to portray Wal-Mart as an idyllic place to work. Most absurd, it's been reported that they've hired a bevy of consultants -- former Democrats and Republicans -- to run an aggressive war room out of their Bentonville headquarters.

How great is the business risk to Wal-Mart from these blistering attacks? And is it too late for them to turn things around? According to a study conducted by McKinsey and leaked by Wal-Mart Watch, between 2% and 8% of consumers have said they stopped pushing a Wal-Mart cart because of the company's practices. That could be over-reporting, and the history of consumers voting with their credit cards isn't that favorable for activists (remember Girlcotts?). But it doesn't take much to put a real blockage in their revenue stream. And the risk is less an outright refusal to shop there than a gradual erosion in shopping frequency and the average ticket. Wal-Mart operates on such razor-thin margins, and Wall Street demands such strong quarter-over-quarter sales, that the total impact of the public relations swirl could be devastating in the short and long term.

So yes, Wal-Mart is right in viewing this particular moment as a turning point, but it's wrong in just about every other way. If it wants to neutralize Wal-Mart Watch, Wake-Up Wal-Mart, and the other activists, it needs to radically retool its approach. Here are ten initiatives that would start to turn things around and elevate Wal-Mart to a stature in the American consciousness that mirrors its business triumph:

1. Stop defending and start examining. Even Jacques Chirac conceded that the recent riots in France were based on a deep and abiding social inequity. Begin a transparent process of looking into how the business has grown, in part, on the backs of the people it serves. Be prepared to accept responsibility, acknowledge difficult truths, and construct a plan for productive change. Are every one of your policies corporate models of enlightened management? Hardly. But to read your Website, they are.

You are not in a war, and you must not define the current situation as a cosmic struggle. The truth is, the people who say horrible things about you can be horribly right -- at least some of the time. The good news is that a commitment to change goes a long way in the mind of consumers. They want their relationship with you to be based on trust. They don't expect you to fix everything right away, but like Dr. Phil rightly says, you can't address what you don't acknowledge.

2. Fire your consultants. The last thing you want are fiercely partisan media manipulators. For years you stayed clear of public relations, staying true to Sam Walton's conviction that those activities were a waste of good money. Now, you've over-corrected in a really scary way, and have gone out and hired a rogue's gallery of spinmeisters who've worked for Reagan, Clinton, Kerry, and Bush. Is that something to be proud of? These are the people who have thrown gasoline on our obscene culture of partisanship and demonization of the "enemy." They're never going to level with you. They'll reinforce your defensive posture, collect fat checks, and try to win debating points in the consumer culture with focus-group tested language. Look at public opinion polls and see where politicians of all species are ranked. Do you want to debase your brand by signing up with the people who've helped make this mess?

And remember, consumers don't even pay attention to all those fancy words, they're tuned into a completely different frequency: which side seems to have fairness on its side; which argument fits my preconceived, imprinted notions and belief systems; what have I heard through the truth-vine of word-of-mouth? (A recent study found that consumers believe other consumers far more than other presumed sources of authority, including news and "expert commentary.")

3. Leverage your size to help your 1.6 million employees in unexpected ways. The public views you as resisting health insurance benefits because you are cheap and evil. Turn that around. Imagine the radical impact you could have on the marketplace and your brand optics if you focused your ruthless cost-cutting skills on HMOs, forcing them to crumble under the same margin pressure that you so regularly exert on vendors. Run a commercial about that instead of those unconvincing and alienating staged scenes of exaggeratedly fulfilled employees. Imagine, also, how positively you would be perceived if you used your operation as a laboratory to test alternative health-care approaches?

And there are other innovative ways to use your vast clout and buying power to bring real value to your employees, and yes, make Wal-Mart an employer of choice instead of the exhaust system of the American economy. Why can't you negotiate discounted, bulk mortgage, insurance, and home heating-oil rates? Taking it one step further, support the communities you do business in by using your infrastructure and purchasing sophistication to help local school districts pool their buying and save on textbooks and other merchandise. All of these programs would be powerful signifiers that your gargantuan size need not be a socially destructive force.

4. Talk to the unions. You've spent years fighting and villainizing them. That's a horrible mistake. It's time to think about the impossible: a solution that would let the unions in. Seemingly impossible solutions are happening with a kind of wild regularity in business these days: GE and BP turning green, Apple deciding to buy chips from Intel, IBM getting out of the PC category, Microsoft and Oracle publicly hugging.

Consider the situation from where the unions sit. The American labor movement is desperate for a victory. They're losing members every year, and spending most of their time negotiating concessions. Both of you have reasons to find a bold and imaginative solution to your standoff. Sure it will cost you more, but it would be such a profound turnaround that I believe you'd see a dramatic sales impact. You'd win back the people who have stopped shopping or are shopping less. For the first time, you would actually make people feel good about where they shop and not just how much they save. It's a critical difference. Consumers wouldn't even mind spending a few pennies more if they knew those shekels were destined to fund health care for families.

5. Support mom and pops. One of the more dramatic moments of the High Cost documentary is testimony from small-town business people feeling Wal-Mart's grip around their neck. It's part of the anti-Wal-Mart folklore, and guess what, it's accurate. You do make it impossible for many small retailers to compete with you, and the decades-long march of your stores across the country has hurled thousands of them into bankruptcy.

But you don't need to be the enemy of the corner store forever. In fact, now is the time to start helping mom and pops in some imaginative ways. For example, start a referral network. Your business model is about reduced SKUs and volume. You're never going to carry the kind of items that the local, niche retailer will. You're not going to stock the hot Dutch eyeglass frames in your optical department, or Napa Valley artisanal honey in your condiment aisle, or the National Book Award poetry winner. So why not let your customers know where they can find them? You're not going to lose a sale, but you'll make a friend. Two, actually: your customers (who will appreciate the generosity of spirit behind it), and the mom and pop stores you've adopted.

You should also be reaching out to local mom and pops with free consulting advice. How can they grow their businesses on the Internet, for example? How can they get better at database marketing? Lend them your expertise and watch how your perception will improve in the communities you serve.

[Editor's note: This column was published in two parts. Click here for Adam Hanft's final five suggestions for Wal-Mart.]

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23 Comments

  • David Hopkins

    Wal-Mart is a great and powerful company. With great power comes great responsability. When Wal-Mart was a small company it took a "shark" attitude to grow to the top. Once at the top the same "shark" attitude appears more like a predater or virus that is not healthy to prey. Like the politician who spends much resource getting elected with little plan of what good the can do when they get there, Wal-Mart has no plan of what good they can do with the power they have achieved. Wal-Mart has become a self feeding beast intent on taking over the world because it believes it can. At least Hitler was honest about it and sent out armies instead of trying to control the world economy.

  • Brittny

    Thanks for the article. You don't have to agree with all the suggestions. Just appreciate approaching the situation with new, and you must admit, admirable ideas. Without such shifts in thinking, no truly positive outcome will emerge.

    YES, WM, please use your leverage to secure better insurance, etc. Would lowering insurance company margins affect the rest of us? I'm not as educated as the rest of you to know. But how wonderful to use such power positively.

    As an herbalist, I'm fearful of the quality of products WM would carry (and do carry) in the alternative medicine field. Of course my suggestions won't work when the product is inferior. I'd love for the field to expand, of course, but the insurance system has created such an awful situation where people refuse to take responsibility for their health and then blame their MD when the drug doesn't work. I hope to die before that happens to alternative medicine.

    Lastly, how could you possibly save $30-$50 per WM grocery trip? Please, see the light and pay the extra $5/trip. Just trust that your actions will make a difference. Perhaps save my husband his meat cutting job at the local grocer, with health, dental, life, etc, that he couldn't make anywhere else in our rural community. You all make wonderful arguments, but in our position, it's hard to side with WM. Oh well, since we only use med. ins. for emergencies, it'll be cheaper for us to pay the state insurance premium and get unemployment so I can work FT and he can watch the kids. Change is good.

  • Doug Baker

    Maybe wal mart should let the unions in so the unions can do to them what they have done to GM, Ford and other great companies. Unions need to go away. Their time has passed.

  • Jonathan King

    Recently, I have stopped shopping at Wal-Mart completely. The last straw for me was the endless revelations put forth by the recent High Cost film, but I've been conscious of Wal-Mart's destructive and immoral practices since I read The Wal-Mart You Don't Know in FC December 2003 - read that article for some eye-opening info.

  • Greg

    For me, it just comes down to the bottom line on my grocery budget. I would love to support our local grocer, but I'm not willing to part with the extra $30-$50 per week. I'll continue to shop at Wal-Mart because of their lower prices.
    As long as their corporate policies don't impact me directly, then I will continue to give them my business.

  • me

    If you dont like them, don't shop there. Tell your friends and relatives not to shop there. Go to Target. It's that simple. If Walmart is too stupid to understand that great responsibility comes with great success...there is nothing we can do...we wish companies were more socially responsible...but just like people they usually won't be (its expensive)...look at everyone who still smokes...human nature I guess?

  • Greg Zirkle

    In defense of those of us who used the words "laughable" and "ridiculous" in regard to Mr. Hanft's suggestions, the intent was not to lower the level of discourse but merely to say some of the ideas presented genuinely made me laugh. Ergo, "laughable."

  • jim

    Proof positive that big business isn't bad, but it had better be responsible, and responsive to social issues. Unrelenting drive for profits so that investors gain wealth at the expense of everything else is no longer enough.

  • Keith Kamisugi

    I welcomed seeing Adam's article on Fast Company blog. And can we raise the level of discourse on this issue without resorting to calling a certain point of view "laughable" and "ridiculous"?

    I do not shop at Wal-Mart because it is a socially irresponsible company, excessively profiting off the backs of unfairly treated workers.

    I look forward to part two.

  • Laura

    "The reality is American's got exactly what they've asked for. Cheap prices, ugly stores, low pay and merchandise made anywhere with only price in mind." I must concur with B. Market behavior is ultimately about personal responsibility. I don't shop at Wal-mart because I can get comparable deals at Target (a corporation I admire) and at Walgreen's which is cost-competitive and takes less time. When I chose to wean myself from the "I gotta buy it because it's such a deal" habit, I started to dump the extra dollars into retirement accounts. Consumer choice is key to free markets.

  • B

    This article is nearly ridiculous and doesn't address the larger, more complex issues at hand. Fast Company should be more responsible in its journalism. This would never be printed in the Wall Street Journal, a pro business newspaper, or The New York Times, a liberally bent newspaper. The point is this article has no place in award winning journalism regardless of your agenda.

    I've been a consultant to many of the senior executives in America's most successful companies. I can clearly say that anyone who wants to complain about Wal-mart should look in the mirror first. Wal-mart didn't grow to be the largest corporation by any other method than having the largest number of customers. If you don't like them, don't shop there. The market determines winners and losers. The market is voting for Wal-mart. Now, I am not condoning or condeming but we do live in a free market economy. The reality is American's got exactly what they've asked for. Cheap prices, ugly stores, low pay and merchandise made anywhere with only price in mind.

    There are 300 million people in this country. A million work for Wal-mart. They are paid much better wages than the minimum wage and they are offered benefits of some sorts. I grew up in a small town and the neighborhood grocer still pays people much less than any Wal-Mart, offers no benefits, treats its employees like dirt and the owners drive around in Ferraris, Porsches and Lexus's. And they buy no more or less American product than Wal-mart.

    If you want Wal-mart to change, you need to change. America has no nationalistic sense of self. That may be good or it may be bad. But it is. It's all about the deal regardless of where it is made, how much the person made in the process and whether it puts your neighbor out of work. We are a nation of "me first" and who really cares as long as I get $30 off that $500 TV. You want better jobs? You want higher pay? You want better labor practices? Then quit complaining and force change in yourself, your spending habits, your political voice, your fellow American and your social passions. Until then, Wal-mart will flourish.

    Now, here is what should have been printed in this article. The American government has laws about monopolistic practices. Any large concentration of power or ability to dominate an industry is unhealthy. Be it IBM in the 70s, Microsoft in the 90s, Wal-mart today, GM or Ford for decades and the like. Concentrations of power result in concentrations of thought, stifling creativity, an ability to manipulate a market, create unfair market practices and the sort. The question should be if Wal-mart rises to that benchmark and do they use their size to unfairly manipulate the market. I don't think so but it is a valid debate.

  • Joe Donovan

    A laughable attack on a good business model. Almost as goofy as the poll last week that stated "70% of Americans unhappy with Walmart." Yet, the day after Thanksgiving the only problem Walmart suffered was parking for the customer overflow.

    You want to help the Mom and Pop stores? Get rid of the mind numbing and unfair reporting/regulation required by government. Then Mom and Pop could spend their time competing.

  • Christina Haefs

    Wal-Mart does offer affordable healthcare to their customers in their optical departments. Their eyecare is provided by local state licensed and board certified optometrists. Most of the patients who see a Wal-Mart optometrist do not have vision benefits or even health insurance.

    I have worked as an optometrist in hospitals, private optometry and ophthalmology offices, HMOs, and retail settings and can honestly tell you that the comprehensive eye exam I provide for $39 at Wal-Mart is the same exact exam I have provided for patients in the ophthalmologists office for $140. Wal-Mart would let us increase our exam fees if we wanted to, but we choose to keep our fees affordable for the community.

    Wal-Mart in turn provides low cost frames, lenses, and contacts, thus keeping rural America visually funtioning, working, and safe. Here lies the wisdom of using buying power, locations, and distribution for the common good.

  • Chris Forbes

    I'd like to see Wal-mart start offering health care resources to their customers too. There are a lot of average people who can't afford to pay the prices for the basics of health care. Rather than paying what these copanies want to price things, Wal-Mart could get more of a free market effect going. I like the idea of leveraging a little of that Wally-world buying power toward bringing the prices down on medical and dental resources. Also, Wal-Mart has the power, distribution and locations to help people in rural areas with medical resources.

  • Greg Zirkle

    Did it ever occur to the author WHY unions are desperate for a victory, why they're losing members and negotiating concessions?

    Could it be theirs is the outdated business model? Could it be they've chosen the adversarial route for decades and overplayed their hand too long?

    Yep, could be.

    It's not that all of Mr. Hanft's ideas are laughable, but this one torpedoed the whole piece for me. What's in it for Wal-Mart to stop the unions' self-inflicted decline? It's all risk, no upside! I've seen Mr. Hanft's first five ideas, and that's plenty.

  • Gerald Rogers

    Walmart will end up like GM and FORD if they give in to union thugs. Both of those union companies provided great benefits and high wages to their employees. Both companines passed that 'protection insurance' cost to the consumer. Honda and Toyota came in and competed on price, the only thing that matters. Now those 2 'great place to work' companies are laying off their well-treated happy employees.

    Where were these same whistle blowers complaining about the wonderful mom and pop shops that had low wages and no insurance benefits. Where is the Michael Moore video on the restaurant industry?

    Stop and listen to who is blowing the pay and benefits whistle. This well orchestrated smear campaign is the last gasp grasp for a dying union.

    Stay Strong Walmart and keep my prices low.

  • Ron Donovan

    The article doesn't say Wal-Mart is evil. All it suggests is that a large and important company in our economy needs to look at how it does business. The model they grew on has worked for them until now. But now they have more worry about than low prices and building new stores. Every great company reaches this point and how they respond determines if they remain great. ATT has been sold, GM is close to declaring bankruptcy. Wal-Mart has a chance to learn and change before events and opinions overtake them. I'm looking forward to the next five steps.

  • Wilson

    I really liked Fast Company when it was looking and praising companies that searched for innovation and ways to maximize productivity as Walmart has done.

    To me, Walmart is a great example of how a small company can turn into a great company. This attitude of making a company evil just because is doing what is supposed to be doing makes me sick.

    Walmart has created 1.6 million jobs, and made extremly profitable business for its suppliers.

    The beauty of the free economy is that anyone can create a Walmart --- if you can.

  • John Jay

    Stop sticking your head in the sand and realize that Walmart is an out of control destructive force. This is a balanced response that proposes solutions and not just the usual bashing retoric.