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Big story in Time this week looking at how Wal-Mart is attempting to deal with a central issue with both marketing and operational implications – the fact that many of its stores and employees seem to be disconnected from the communities and neighborhoods that they serve:

“It's a remarkable statement: the best retail company ever created, the largest company in the world, with annual sales of $345 billion, is struggling. So it requires a big, bold fix. The company that Sam Walton created for the rural South is being massively overhauled to compete in the more urban, more competitive universe where it now lives. You might not notice it yet if you shop there, but Wal-Mart is in the midst of a revolution, an audacious three-year plan that will change practically everything the company does: the way it builds and operates stores, the way it buys and stocks merchandise, the way it hires, trains and compensates employees.

“In truth, Wal-Mart is a little desperate--it launched a price war for Christmas toys in early October and then slashed 15,000 prices storewide. It increasingly seems the company's 45-year-old business model--based on a continuously improving supply-chain loop--is better suited to developing economies like Mexico, Brazil and China, where it is doing well, than to mature markets like the U.S. and Japan, where it isn't. In the U.S., same-store sales increases are bumping along at 1% to 2% a month, while rival Target, the fashion-forward, design-centric glamour girl of discounting, runs up 2% to 4% monthly increases. Wall Street complains that Wal-Mart spends too much money opening the same old big boxes, so much so that Wal-Mart announced it will cut store growth and even trim store size.”

“You do more and more of the same thing and put more and more energy against the same activity, and the rate of improvement diminishes,” CEO Lee Scott tells Time. “So then do you put more resources against doing the same thing, or do you finally back up and say, 'You know what? The world's changed.”

Time reports: “Your new Wal-Mart is being baked on the premises. The company is testing a dozen new store prototypes that have lower sight lines, woodlike fixtures and a more department-store feel in some sections. Let's not get carried away: it's still a big-box store, but that box isn't quite so stuffed anymore … In its search for that shop-till-you drop formula, Wal-Mart is testing one prototype in the middle of Middle America--Elyria, Ohio.” The store is described as “a very un-Wal-Mart-like area that features low, wood-veneer (actually recycled plastic) side counters where towels are displayed. You can actually see over the department, and the sight makes you want to linger; you're not hemmed in by the usual 8-ft.-high (2.5 m) discount-store shelving crammed with merchandise. The assortment--the colors and styles--is broad and deep, even attractive. The prices are killer, natch, but it's the look of the department that is designed to stop traffic and perhaps get a shopper to take a glimpse at that $200 Dyson vacuum cleaner nearby.”

Time suggests that the process will take time, and the results are uncertain. Wal-Mart has a lot of battles to fight, and the vastness of its empire makes it hard to force cultural change. Which is one reason that top management is trying to get more decision-making into the hands of regional and store managers, which is itself a struggle.

And, it seems, the clock is ticking: “Next year is critical for Wal-Mart: it must deliver on the promises made to Wall Street. In its struggles, Wal-Mart faintly resembles another company that once ruled retailing from a central HQ. Sears, Roebuck grew fat supplying rural and small-town America, but ultimately its culture couldn't adjust to shopping-mall America or to discounters. Shoppers today have little idea how awesome was the power of the Chicago merchant. And before Sears there was the Great Atlantic & Pacific Tea Co., the A&P, an urban power that once ran nearly 16,000 U.S. stores. Competitors quaked before it. This is the history of retailing. It says that every company that has reached No. 1, from Woolworth's to Kmart, has eventually spit the bit, unable to cope with market shifts. Wal-Mart is a far superior operator to any of those has beens--it will produce $20 billion in operating income this year. But being king is an awfully heavy weight to bear, and Wal-Mart is feeling the strain.”

KC's View:
Go read the whole piece in Time; these excerpts can just give you the flavor of it.

I’m not sure why, but in reading this piece, I suddenly flashed on an old Johnny Carson routine. (If you’re too young to know who Carson is, keep it to yourself.)

He’d be drinking a glass of water and would say, “The king is dead, long live the king,” signaling the death of one monarch and the ascendancy of another. And then Ed McMahon would shout, “The king’s alive,” and Carson would do what in comedy circles
Is known as a “spit take.” I can't tell you how many times I saw Carson do it, but it always made me laugh.

Warning to people who think that Wal-Mart is in serious trouble. The king isn’t dead. Not by a long shot. That doesn’t mean that it doesn’t face enormous challenges, nor that it will be able to forever avoid the inevitable declines that destroyed other monarchs.

But you should never underestimate the king.