Thursday, July 21, 2011

Walmart (WMT): Part Two - Raison D'être

Our Reason for Existing

After three hours of high-energy corporate pep rally, Walmart's CEO - Mike Duke - strides onto stage to bat clean up. The setting is the company's annual shareholders' meeting, emceed by Will Smith and featuring a cavalcade of senior executive speeches and heart-warming vignettes on the dedication of Walmart associates.

Whether from Doug McMillon of Walmart International, Brian Cornell of Sam's Club, or Eduardo Castro-Wright of, each manager preceding the CEO has used his stage time to extol the virtues of what they call the Productivity Loop: Operate for less through every day low costs (EDLC), which leads to...Buy for less from suppliers, which leads to...Sell for less to customers with every day low price (EDLP), which leads to...GROWTH! And the loop circles around the unifying theme of "Saving people money so they can live better."

It's a steady drumbeat, and it's loud. Audience members will not leave this meeting foggy on the takeaway points. Yet it's not limited to one meeting. Review any public presentation by a Walmart executive (you can find them here) and you will see that each returns to these same ideas over and over and over again.

Back at the shareholders' meeting, Mike Duke comes on stage, keeping the streak alive with yet another speech about the Productivity Loop. As he highlights the connection between EDLP and EDLC, he walks to  the podium and grabs a well-worn copy of Sam Walton: Made in America, opening it as if he's preparing to read chapter and verse from scripture itself.

Duke says (and I'll paraphrase to a degree),
"I picked this book off my shelf and read it again this week, for what must be the third or fourth time. And let me share with you what Mr. Sam has to say about EDLC...'We exist to provide value to our customers, which means that, in addition to quality and service, we have to save them money. Every time Walmart spends one dollar foolishly, it comes right out of our customers' pockets. Every time we save them a dollar, that puts us one more step ahead of the competition - which is where we will always plan to be.'"

Duke closes the book and holds it up solemnly for the auditorium to behold. They clap reverently at Mr. Sam's immortalized words just before the current CEO sums it up with this statement:
"No one controls costs better than Walmart because we do it for the right reason. It's for our customer."
There. That's Walmart's raison d'être. It's reason for existence.

The final genius of Sam Walton may have been just that...distilling a retail philosophy into just a few pithy statements, making it so much easier to build and maintain a company culture on these simple, unifying themes. So much so that his company executives continue to refer to him as Mr. Sam nearly twenty years after his death and keep dog-eared copies of his book lying around just in case they need a fresh injection of his wisdom. So much so that a company with 2.1 million employees, over 9,000 retail outlets, operating in 28 countries, and with sales approaching the half-a-TRILLION mark...continues to stick to the same simple, unifying themes.

Next...the "principle of parsimony" when combined with an accurate raison d'être makes for formidable force in retailing.

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