Walmart: Rearranging chairs?

The New Zealand Herald announced that a native son, Greg Foran, was taking over as Walmart’s new U.S. chief.  Will this solve Walmart’s problems or is it the equivalent of rearranging chairs on the Titanic?

Not about Mr. Foran

While I have no reason to question Mr. Foran’s talent, experience or intellect I’m going to make a prediction.  His tenure in this role will end within 18 months.  Not because he lacks skills or expertise, but because Walmart’s business model is flawed.  

Flawed business model

Low-price strategies inevitably fail.  That’s what Walmart has been experiencing for the past 7 years.   And will continue to experience as long as it clings to its low-price strategy.  Walmart recognized this 7 years ago when it changed it’s tag line from ‘Always low prices, Always’ to ‘Save money – Live better.’  Yet its attempts to rebrand have been puny and ineffective.

I’ve been predicting that Walmart’s results would spiral down for over 5 years now.  There are two reasons for this prediction.  The first is simple math.  Any company that reduces prices has to add customers at a rate that exceeds the price cut in order to grow.

Second, at some point vendors and employees resist further cost cutting moves.  As the economy improves and vendors have more potential customers and employees more job opportunities, both shift to where their greatest potential lies.  That potential does not exist in companies like Walmart that are continuously striving to reduce costs to perpetuate their low-price strategies.

When you combine these two factors, the inability to increase your customer base fast enough to offset price cuts and more profitable opportunities for vendors and employees, you’re on the threshold of failure.

Alternative

The only viable alternative for Walmart (or any company in the same situation) is to discover something the market wants that it isn’t getting, then provide it.  That involves a serious rebranding and a willingness to experience sales and profit declines during the transition.

Unfortunately few business leaders possess the courage to admit that a strategy is failing much less suffer the sales and profit declines a rebranding engenders.  Unless Walmart is giving Mr. Foran free rein to effect a complete rebranding of the company, he cannot possibly be successful.  I doubt that Walmart is in enough pain to allow Mr. Foran that freedom.

I believe that it was Tony Robbins that said that change doesn’t occur until the pain experienced is greater than the perceived pain of change.  I don’t believe that Walmart’s leadership is suffering enough pain to want to make the kind of dramatic strategic shift that it’s situation warrants.  If I’m anywhere near accurate in this assessment, Mr. Foran’s tenure in the U.S. chief role will be short lived despite the talents, experience and expertise he possesses.

For his sake, and that of all of Walmart’s stakeholders, I hope that I’m wrong – that Walmart is indeed ready to move away from its low-price strategy.

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