Walmart's $1.85 billon dollar mistake
- $1.85 billon dollar customer experience mistake made by Walmart (a conservative estimate of lost revenue that does not include the hundreds of millions spent on remodeling stores)
- What happened? Walmart rolled out "Project Impact" - a major change in strategy and store customer experience - starting in 2008
- Why? Customers answered a Walmart survey and told Walmart that they would prefer less clutter in the stores
- Walmart revised their decades-old strategy of low price and wide selection
- 15% of the inventory removed from the stores
- 30% - some suppliers reported losing 30% of their stock in Walmart stores due to the revamp
- Removed pallets of items like juice boxes or sweatshirts stacked in the centers of aisles.
- Slimmed down merchandise on “end caps,” displays at the ends of aisles
- Shortened shelves
- Revamp not only removed items but cost "millions of dollars" per store in refurbishment costs
- Saw an immediate loss in sales and decline in same-store sales data (see chart below)
Why did Walmart make this change to its core strategy?
- Walmart made a common mistake repeated hundreds of times in the business world: they relied on what customers said in a survey versus what they actually do in the stores (and online)
- Yes, customers will say they want less clutter, but as Sam Walton, founder of Walmart knew, they wanted broad selection even more
- Barry Schwartz, in his presentation to the recent Councils summit in New York, talked about how surveys and focus groups bring out only what's easy to verbalize
- And what's easy to verbalize is not necessarily what's important
- Generally, the important stuff is actually harder to verbalize and thus remains hidden
- Walmart executives compounded their mistaken reliance on customer surveys with "a drive to make Walmart look more like Target" (led by Target veteran John Fleming who was head of merchandising at Walmart before he was let go in 2010)
- This competition to look like Target also "played well in consumer experience surveys"
What was the result of Project Impact?
- $1.85 billion in potential revenue lost - my conservative estimate of lost revenue in U.S. Stores (see chart below)
- Same-store sales flipped negative (see chart above) at about the time many stores were remodeled to reduce clutter
- Customer satisfaction "soared" (i.e. went up)
What are some other retailers doing?
- They are taking advantage of Walmart's stumble
- Amazon continues to lower its prices and broaden its selection - using Walmart's decades-old playbook to beat it
- Dollar General is raising the height of its standard shelves to more than six feet
- J. C. Penney is turning its empty walls into jewelry and accessory displays
- Old Navy is adding lanes lined with items like water bottles, candy and lunchboxes
- Best Buy is testing wheeling in bigger items, like Segways and bicycles, to suck up the space created by thinner TVs and smaller speakers
What is Walmart now doing?
- They have reversed Project Impact and are adding products back to the stores
- They fired the senior executives in charge of the failed strategy
Phil's take: As I said in my keynote last week "Give Your Customers A Raise", companies that deliver both low prices and a good experience are winning in this economy. The mistake Walmart made was in the definition of good experience. They thought it meant cleaner, less-cluttered stores and while customers will say they like cleaner, easier-to-navigate stores (who doesn't?), their behavior shows that even more important to them is a broad selection of low-priced items. While Project Impact has been bad news for shareholders, customers and senior executives (who were fired), Walmart and other companies have an opportunity to learn an important customer experience lesson: mind the gap between what customers say and what they do.
Conservative estimate of revenue lost due to Project Impact
Daily Artifacts model
Used linear regression analysis with conservative assumptions to project what revenue would have been if Project Impact had not taken place
The New York Times
April 7, 2011
http://nyti.ms/dUHCKcGive Your Customers a Raise
Daily Artifacts
April 4, 2011
http://dailyartifacts.com/give-your-customers-a-raise
U.S. Sales At Wal-Mart Show Decline
The New York Times
February 22, 2011
http://nyti.ms/dZDFTT
Walmart's 'Project Impact' Craters Sales, but the Retailer Persists
Daily Finance
March 31, 2010
http://t.co/4iU1jju
Walmart Makes Too Much of an 'Impact', Beefs Up Assortment
Chain Says It's Sticking With Decluttering Project Impact, but Stores Are Showing Signs of Return to Sam Walton's Day
Ad Age
July 12, 2010
http://adage.com/u/WQTSna
Walmart's 'Project Impact' Redesign Takes Toll on Sales
In Reducing Floor Clutter, Shopper-Friendly Initiative Dents Receipts, Supplier Returns
Ad Age
October 19, 2009
http://adage.com/u/hSjlbb
