Walmart: In Need Of Stronger Domestic Leadership

Greg Foran, in his eighth month as the new president of the U.S. division of Walmart, recently met with analysts to discuss his outlook for the company. The meeting, attended by more than 100 senior analysts was a disappointment since it was mostly just a review of basic merchandising and procedures. There were few hard facts, and I think that Mr. Foran is in awe at running 4500 stores – a fact he repeated several times. He did not project the impression of a strong, confident manager.

His theme was that he is proceeding slowly and cautiously to make changes. That is not what I expected, even hoped to hear, since it means his stores are a long way from a brighter outlook. Both from an operational and merchandising point of view the stores are in need of a new direction. I would have liked to hear about his plans for this fall season since the retail industry is proceeding at breakneck speed to consolidate and become more efficient. I felt that he was pleased with the Express and Walmart Neighborhood Market stores – small formats that are easy to expand and multiply – but he also gave a strong endorsement to the superstores. However, there was no announcement of any new expansion plans.

Greg Foran is trying to improve the customer experience through aggressive pricing and improved shopping environment. He specifically called out that he is focused on the food area, assuring analysts that the food and produce will improve. This is a long term project requiring infrastructure. He also hopes to accelerate merging digital with physical stores, developing a strong omnichannel philosophy with the aid of improved systems.

He justified the move to raise salaries and improve associates morale, which was announced last month, and will increase selling costs by about $ 1 Billion for the year, by reducing inventories in stores. However, Walmart is also looking for vendors to reduce prices on commodity products, thus raising profit margins to offset the increased operating costs. Vendors, I believe, in many instances have already cut their margins in order to do business with Walmart. I do not believe you can squeeze more juice out of dry lemons and it runs counter to the pricing policy of Sam Walton who would have passed any vendor savings on to his customers by reducing prices. The idea of raising salaries is just; it will raise morale and should generate more sales. The idea to reduce inventory is good if it forces the company to be on a faster track to replenish merchandise. The idea of forcing vendors to support this initiative by reducing prices is not realistic.

But Sam Walton is on Greg Foran’s mind. Sam’s direction empowered store mangers to enhance their store assortment with special merchandise that appealed to their customers in specific areas. Apparently under the last two weak regimes, headed by Eduardo Castro and Bill Simon, store managers were not permitted to change assortments and could not act independently. That is being changed, and while it may only by a small percentage of the assortment, it will reestablish individuality to stores.

All in all, Walmart needs a stronger manager than Greg Foran to run their domestic division. The customer must come back to Walmart stores sooner than he envisioned. There must be incentive programs for associates to support the business and loyalty programs for customers that will encourage customers to shop more aggressively.