Summary
Regional purchasing and merchandising strategies are not new to this channel.
Finding the right vendor partners will be a big help.
How do they assure this change is profitable.
Analysis
So the catch phrase "think global act local" has finally come home to roost at Wal-Mart US. As a company that prides itself on getting large scale procurement and logistics right, implementing a regional merchandising strategy here in the US should not be difficult from an macro operations perspective, but will be in terms of initial product selection and replenishment, which drives traffic and profits. As GLG Scholar Nicolas White noted in his analysis, the Wal-Mart organization structure will result in increased turf battles between HQ and the local store managers in terms of product placement, promotion and competing bonuses. We must also keep in mind that relative experience in merchandising decreases dramatically the farther away you travel from Bentonville. In fact, what keeps assortments in check most of the time at WM is not the buyers, but senior merchandisers (DMM’s and GMM’s). Over the longer term, developing a stronger regional management team focused not just on store operations, but on the customer is important and within the scope of Sam’s vision, but easier said than done. It will also take longer than the 18-24 months senior management has predicted.
Regional merchandising has been executed for years in various departments where climate dictates the need for rock salt versus sunshades, and to a lesser degree in clothing where winter jackets are stocked virtually year round versus shorts. Recognizing that you need targeted marketing and product assortments for Hispanic, African and Asian Americans is also just plain old common sense. If the early numbers on velocity and margins from the 200 test stores carry through, it will be a good move, but the real, total costs of implementation are buried within the system.
Castro-Wright understands regional differences from his experience in the Mexican business, but if you step back from the question of WM’s internal competence to deliver this strategy, there are some potential areas where help is available. In market-leading consumer products companies, sufficient published research exists with tools like Spectra to pin down and execute regional merchandising. Partnering as a Wal-Mart vendor means you need to be able to bring every advantage to the table. Those companies who can marry above-average category management and quantitative and qualitative consumer research skills should graduate into stronger vendor relationships. As usual, WM buyers will push their tasks in this area back on vendors and change too frequently. How that will work at the regional level, where these Bentonville style relationships have taken years to nurture is a big question?
It will also be interesting to see opportunities here for specialty manufacturers to fill the not only the ethnic product needs, but also bring value assortments into other regional buys, that may historically have been in other channels. Food products, as a traffic builder will be an important piece of this strategy.
There are certainly many more chances of this execution going wrong than right, hence the smaller scale tests. As Mr. White pointed out, losing sight of Sam’s vision would be a big mistake. As a company to date structured solely for that direction, it must balance regional product assortments carefully to retain its EDLP positioning, while retaining and expanding its consumer base.
