Differentiate, emulate & dominate

An insider's perspective, WalSmart is an interesting account of how the retail behemoth has managed to stay on top all these years, thanks to its productivity loop""reduce costs, invest the savings in low prices, use lower prices to boost sales and generate higher profits to invest in reducing costs further. William H Marquard,who helped write some of the strategies at the Bentonville-headquartered discounter during his three-year stint there, shares his insights about how Wal-Mart works and at the same time attempts to guide smaller companies on how they can tackle big players not just in the retail sector but in any industry, in an environment when low prices are no longer a competitive advantage but a given. Marquard holds that firms must embrace the concept of the loop, which is much like a fitness plan, and then must either copy Wal-Mart or come up with an equally good concept.

Littered with anecdotes, the first part of the book is a tribute to Wal-Mart and the author, a consultant and Fortune 200 executive for 25 years, stresses the fact that it's not just an efficient logistics systems, low-cost structure or even its well-known EveryDayLow Price(ELDP) proposition that have created Wal-Mart'ssustainable advantages. These are also not the only reasons why convenience stores, supermarkets, bookstores, toy stores and even hair salons have been at the receiving end of Wal-Mart's power.

The retail giant's success lies as much in its ability to focus on what it does best and staying away from areas which it might be tempted to enter. As also, its ability to mobilise the support of employees and, equally important, its attitude which demonstrates the urgency to act rather than pontificate. The author tells a story of how quickly the firm is able to execute an idea. In January 2006, it should have enough exercising merchandise such as treadmills and bicycles in its stores before customers lost the resolve to act on their New Year resolutions. Initially only 41 per cent of the stores had acted on the directive. Anxious not to lose out on sales, senior executive John Menzer rallied his troops and told them that setting up a fitness centre was "non-negotiatiable". Within a week compliance had hit 91 per cent. The result of such action is that average people end up achieving above-average results, processes scale up and down well, and over time are strengthened so that leaders can work successfully in any function.

The author contrasts the working of Wal-Mart with those of other firms where accountability is low, goals are not well-defined, processes are embedded in people and leaders are too far removed from the frontlines to be able to act effectively. He calls the latter weak process organisations, which are often over-dependent on "stars" and are therefore vulnerable to erratic performances. What Marquard feels is most critical for any enterprise is the ability to choose what to do and undo mistakes. Even Wal-Mart, he points out, had made several errors""for example its SAM'S CLUB strategy "exhibits a schizophrenic focus" and to this day doesn't make too much money.

Marquard's recipe for succeeding in a world with big players is to differentiate, emulate and dominate. It's not as though entrepreneurs anywhere in the world wouldn't be aware of many of these concepts, whether it's focusing on costs or introducing loyalty cards. However, the way in which successful retailers have actually gone about implementing their strategies is educative. As illustrated through case studies, retailers like Tesco have managed to dominate markets like the UK"" a country where Wal-Mart's EDLP strategy hasn't worked as well""by running a sophisticated loyalty card operation and selling three lines of private label goods. It's the details that the author provides that make the book worth reading, it's not just jargon being spewed. For instance, the example of how niche retailers like the 80-year-old Marra drug store emulate Wal-Mart by following similar inventory-control practices but differentiate themselves by stocking many more prescription drugs than competitors (even if some of them are low-margin products), ensuring that customers remain loyal, is really fascinating. Another is the study of the strategy that Philip Marineau used to turn around the struggling Levi Strauss""he risked degrading the brand by selling jeans in mass merchant outlets like Wal-Mart. This is a book that Indian retailers should find useful as they face the prospect of keen competition in the sector both from foreign and local players. As the author says, no firm should blame its failure on competition.

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WALSMART
What it really takes to profit in a Wal-Mart world

William H Marquard
Tata McGraw-Hill Edition
Price: Rs 450