Ten Steps to Turn Around Wal-Mart, Part 1

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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