Wal-Mart arrival heralds change for UK marketers

Most people must have asked the same question: what exactly will Wal-Mart do with Asda? And rightly so. With major German and UK acquisitions under its belt, Wal-Mart needs only one more in France to leap to a new level of retail competitiveness.

Major outlets such as Tesco, Sainsbury’s, Boots and B&Q transformed UK retailing by building national economies of scale – reorganising supply chains, rationalising the supplier base and leveraging their purchasing power – to offer better value to their customers.

Wal-Mart is now on the verge of doing the same, except on a pan-European scale. If it succeeds, it will sweep the rug from under national retailers’ feet, and transform the rules of the game for both retailers and their suppliers, in the non-food and food sectors alike.

There are, however, other aspects of this takeover which received less attention. One is that, as Kurt Salmon consultant Philip Turnbull says: “Asda has also got something to teach Wal-Mart”, especially in areas such as food distribution and managing smaller stores. Even though Wal-Mart is famous for its double-the size-of-a-football-pitch 300,000 stock-keeping unit megastores, it is developing a multiformat approach, including “neighbourhood” stores which are similar to the Asda stores.

Another Wal-Mart characteristic, though more subtle, is its obsession with information.

Wal-Mart is famous for its 24 terabyte database, managed by a 1,000 strong IT department. Its weekly information collection, which is made up of about 65 million transactions (by item, time, store and price, in the context of the shopping basket), drives almost every aspect of the business. The aim, as described by applications development director Randy Salley, is to “manage each store, one day at a time, one item at a time”, which means choosing the right answers among “120 million possible decisions each day”.

Most companies are not used to handling data of this complexity. Nor are they used to doing so at the speed at which Wal-Mart moves – as close as possible to real time. Within 90 minutes of an item being sold, Wal-Mart’s distribution centres know about it and are organising its replenishment. Indeed, the system is so effective that when the latest flu epidemic hit the US, Wal-Mart tracked its spread by tagging flu remedy sales in its stores. It then simulated its spread from east to west, so that by the time the flu hit each new town, Wal-Mart stores were ready and stocked with the right products in the right volume.

That was just one of the million or so queries that Wal-Mart “associates” make of its data warehouse.

Wal-Mart also aims to use its real time information systems to let consumers – rather than retail or manufacturer marketers – decide what appears on its shelves.

Back in 1987, Salley estimates that 75 per cent of replenishment decisions were made by Wal-Mart managers, or driven by producer push promotions. By 1996 the figure was down to 10 per cent. “Consumer pull” accounts for the remaining 90 per cent – a shift which dramatically restricts the traditional forms of influence exercised by brand manufacturers.

Another Wal-Mart innovation is the way that key suppliers, for example P&G, are not paid for their products until the consumer pays Wal-Mart, that is, until money changes hands at the check-out. This is a lot more than a nifty cashflow wheeze. It fundamentally changes the nature of the relationship between manufacturer and retailer.

Before, when retailers purchased stock from manufacturers and then tried to sell it on to consumers, manufacturers naturally focused on closing the sale with the retailer. Once the retailer had purchased the stock, it was basically the retailer’s problem to sell.

At Wal-Mart, however, P&G effectively owns the product all the time it is sitting on Wal-Mart’s shelves (including taking the hit for things like shrinkage). If the product doesn’t sell, P&G’s cashflow hurts more than Wal-Mart’s does.

The benefit to P&G, of course, is that the faster the product moves off the shelves, the faster the manufacturer gets paid. This was Wal-Mart founder Sam Walton’s touch of genius, because at a stroke the manufacturer’s and the retailer’s interests are focused on the same measures and rewards. As Salley comments: “Through collaboration, both sides are encouraging new measurements and rewards. This is critical because old metrics produce old results.”

Wal-Mart couldn’t do any of these things without its data warehouse, and it just so happens that on the day it announced its acquisition of Asda, NCR (which provides the terabyte data warehouses which power Wal-Mart, Asda, Tesco and the like) was running a seminar on the shift to what the guest speaker, marketing guru Regis McKenna, calls real time marketing.

McKenna has a habit of being around when seminal things happen. He helped Intel launch its first microprocessor; Apple to launch its Macintosh; and Genentech to launch recombinant DNA, which lies at the heart of the current biotech revolution.

His current message is that the new IT and communications infrastructure is turning the marketing model inside-out.

“Instead of companies telling customers what to think, how to act and what to buy, it is the companies trying to figure out what customers want, where they want it and when,” he explains. “That is where data warehousing comes in. It is not ‘I get a lot of knowledge about you so that I can change your thinking’ but ‘I get a lot of information about you so that I can respond to what it is you are demanding of me’.”

The challenge for marketers is to move on from what McKenna calls “the awareness model” (using marketing communications to embed brand associations and memories into consumers’ brains, thereby influencing their purchasing decisions) to a “presence model”, where consumers are ready and able to respond to their demands then and there.

One way Wal-Mart is transforming retailing is by exploiting good old fashioned economies of scale. But – equally important – is its pioneering of “presence model” marketing. It is not alone. Marketers in financial services, telecommunications, media, and the like, are applying similar principles. UK retailers are not far behind, but Wal-Mart’s arrival will accelerate the process.


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