Are the Walls Moving?

Walmart somewhat surprised a number of people last week in closing 269 stores around the globe.[1] For many retailers, this would drastically effect the company but in the case of Walmart, the stores being closed only reflect 1% of total sales and square footage.  The majority of the stores being closed are of the small variety, while Walmart still plans to open over 135 larger format stores within the next fiscal year starting February 1. In total 16,000 people will lose their jobs due to this restructuring.

Seeing that the majority of stores being closed are of the small variety, it can be ascertained that Walmart is looking at decreasing their own internal costs by increasing the retail square foot per employee at a store.

Walmart has developed a poor reputation in numerous communities by driving prices down where local stores can’t compete and paying employees’ minimum wages. In many cases, this has increased the strain on the social services offered by governments. Walmart, somewhat to its own credit, has started to increase wages for its employees, at least in the States.[2] While Walmart has grown with the number of locations it operates, it has become harder for it to find employees to operate the locations.

As you can see, a large proportion of Walmart’s decisions are financially based. Of the 4 value propositions (low price, customer experience, product leadership, and quality), Walmart is competitimg with the proposition that many consider to be the weakest to defend. It should be noted that of the largest companies in the world. Walmart stands out as being possibly the only company that competes fundamentally on price to the consumer.

Has the value proposition undertaken at Walmart starting to hurt the giant? It is widely known that its suppliers are expected to decrease their unit costs over a set period of time.  Has that sponge been squeezed dry? With prices going up at other retailers, do this allow Walmart some availability to also increase their prices?

I recently read an article (you can find it here) stating that this could be the beginning of the end for Walmart. I see this as a small reorganization of the company. Walmart has closed stores in 2013 and has actually abandoned Germany as a market.

What are your thoughts on the Walmart store closures? Is this the beginning of the end?

Have an awesome week.

Kevin

Kevin MacDonald is a Business Consultant at L6S Business Consulting Inc (www.L6SBC.ca). L6S offers services in management consulting, Controller and CFO contracting, and lean management with either project work or teaching/mentoring of staff. Kevin has his CMA accounting designation along with a Black Belt in Lean Six Sigma.

Kevin is active in the community by volunteering for different groups and donates platelets at the Canadian Blood Services clinic on a bi-weekly basis.

For help with your business, contact Kevin at kevin@L6SBC.ca or 780-868-1867

[1] http://news.walmart.com/news-archive/2016/01/15/walmart-continues-sharpened-focus-on-portfolio-management

[2] http://www.wsj.com/articles/wal-mart-to-increase-wages-for-most-u-s-store-workers-1453315937

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