The Flickinger Files Part 1: Walmart

By Burt P. Flickinger III, managing Director, Strategic Resource Group

Editor's Note: An interesting past year has given rise to some subtle yet significant changes on the latest edition of Progressive Grocer’s annual Super 50 ranking of the top grocery retailers. With this in mind, PG enlisted retail food industry expert Burt P. Flickinger III, managing director of Strategic Resource Group, to share candid observations and in-depth insights about select retail newsmakers on the annual retail leaderboard. His assessment of nine retailers – which are segmented into four parts and which draws on his personal and professional opinions and years of research, as well as from archival data contained in the 10th anniversary of PG’s Super 50 in 1975 – appears in a new PG online exclusive feature, The Flickinger Files.

Walmart – ranked No. 1 on PG's Super 50

Walmart's new leadership team of Doug McMillon, CEO Walmart Inc., and Greg Foran, CEO/President U.S., appear to be on the verge of bringing Walmart back from five tough years of problematic same-store-sales.

Their leadership will be transformational given that this is the first time in over 15 years that Walmart has had two leaders with career long success both as merchants and in store operations. Previously, Walmart’s CEO “czars” had come out of HR, finance, warehousing & transportation without sufficient operating and merchandising experience.

McMillon and Foran have proactively addressed significant problems passed along by their predecessors, which resulted in part that Consumer Reports and ASCI (American Customer Satisfaction Index) has rated Walmart the worst major food retailer in the U.S.

Prior management and Walmart's board had under invested in inventory, staffing, store "labor content" hours, and associate compensation. As a result, Walmart tended to have the worst in out-of-stocks, service, long lines, customer complaints and employee turnover.

Employee turnover was a particular problem. After Walmart's founder, Mr. Sam (Walton) acknowledged in his autobiography, My Story "....I was so chintzy, that I really didn't pay my employees very well" (in the beginning).  Sam Walton went on to state that to reduce stealing/”shrink”, increase performance, etc., he put in a profit sharing plan that Walmart contributed "an average of 6 percent of wages to the plan." (Employees did not contribute to the plan.)

Even though Sam Walton stated that the profit sharing plan was the move that he "was proudest of for a number of reasons..." in 2011 – the 40th anniversary of Mr. Sam starting profit sharing –Walton's descendants, as the largest WMT shareholders, and the Walmart board, voted to eliminate the profit sharing plan for hourly workers. At that point, Walmart's problems accelerated on higher employee turnover, horrendous shoppers Walmart stores’ ratings/scores, higher shrink, and poor sales performances relative to cap-ex investments vs. more capable competitors.

Greg Foran "cut his teeth" at Woolie's competing in New Zealand vs. one of the best and most formidable worldwide food retailers, Foodstuffs retail co-op with their dynamic PAK'nSAVE group, which is a cross of the best of WinCo, Wakefern/ShopRite, and Costco stores in the U.S. McMillon has competed vs. the best of the international food, drug, and club store competition. PAK’nSAVE’s stores generate up to 200 percent more sales/per store than Walmart super center, event though PAK’nSAVE’s stores have 50 percent of the sales space of a typical Walmart super center.

It is important for both McMillon and Foran to have Walmart win in the U.S. and throughout North America, especially after Bloomberg reported Walmart lost 25 percent of its market share in China to fast growing national competitors, such as Mark Batenic’s IGA-China’s independent owner/operators hypermarket group.

Walmart has had trouble winning in markets like China, Korea, Japan, the U.K., Europe, and Latin America that do not give Walmart government subsidies that other U.S. competitors do not get typically for distribution centers, super centers, and shopping centers from New York State to New Orleans.

Walmart and other mass volume retailers (MVRs) may have a tougher time

on promotional packs and pricing with the Robinson-Patman antitrust case Phil Woodman and Woodman’s have brought. As background, even though Woodman’s does more volume per store than Walmart, a major vendor, and potentially others, reportedly are not giving Woodman’s the same promotional or special packs and pricing.

In “Price Discrimination: Robinson-Patman Violations: the FTC (Federal Trade Commission) describes “violations, which occur when favored customers of a supplier are given a price advantage over competing customers.” The FTC outlines under “illegal” …”promotional allowances…that are not practically available to all customers on proportionately equal terms.”

If the Department of Justice and the FTC investigate vendor pricing and promotional practices that may have injured competition and consumers, regional food retailers and supermarket chains have the potential to get better prices to in turn lower prices for their shoppers to compete more vigorously with Walmart.

S.M. Flickinger Inc. and others received more balanced pricing and promotional allowances from most vendors prior to Walmart’s and the MVRs’ voracious appetite ate up the majority of the food industry’s pricing and promotional allowances.

As Walmart and the MVRs’ vendors receive more constructive, commercial feedback from a growing group of regional and multi-regional food retailers, Walmart will have to sell more product to make more money, rather than making money on buying via negotiating lowers costs of goods.

Historically, Rob Walton, the son of Walmart founder, Sam Walton, has a long record with Walmart’s board of penuriously under investing in the number of labor “content” hours for stores’ hourly workers, as well as in inventory and shopper service – possibly in part to buy back Walmart stock and increase dividends to record levels to try to prop up the retailer's stock price.

From their respective and collective competitive, consumer, and "turn around" leadership experience, McMillon and Foran have invested more in staffing hours, inventory, in-store replenishment, lower pricing, as well as taking some of the previously lost Walmart workers' profit sharing monies to reinvest in higher pay for hourly associates, which can ultimately help lead to profitable sales growth and higher shopper and worker satisfaction scores and retention.

Walmart is quickly capitalizing on Target’s many egregious mistakes in Canada with Walmart investing $350 million to buy key, former Target stores in the major provinces to fight more fiercely in food-Rx retailing vs. Loblaws-Shoppers Drug, Sobey’s, Jean Coutu, Metro, Overwaitea, and Canada’s many great owner/operator independents.

Beyond the winning more in the U.S. and Canada, McMillon can lead Walmart to a significant and successful worldwide retail reset. Walmart is getting back on the race track with a full focus on food retailing, like “the King” Richard Petty going for a record 200 NASCAR wins vs. the best of the rest of the racing teams.

Walmart's retail competitors can no longer "rest easy" as the biggest retailer in history has awakened from a long slumber of previously uneven management. McMillon will reinvigorate Walmart as a much stronger operator and merchant, which will make a tough industry much rougher for other food, discount and chain drug retailers, co-ops and wholesalers.