Ten Steps to Turn Around Wal-Mart, Part 1
by Adam Hanft
To neutralize its critics, Wal-Mart must radically retool its approach.
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.