According to author Michael “Bird Dawg” Bergdahl, the Wal-Mart fanatical pursuit of efficiency reveals real tactical and strategic opportunities from which Pharmacies can benefit.

 Picking Wal-Mart’s POCKETS 

By Michael Bergdahl

In 1862, a pivotal civil war battle was fought in Northwest Arkansas called the Battle of Pea Ridge. The fighting took place in Benton County, just outside of Bentonville, Arkansas, today the home of Wal-Mart Stores Incorporated. In that battle, the union soldiers defeated the confederates soundly. But, as the saying goes, “the South shall rise again.” A century later, in 1962, Sam Walton opened his first Wal-Mart Store in Benton County starting his own retail civil war. He began his march on retailing supremacy by building stores in rural areas across the Southern United States. Eventually, after establishing himself and gaining momentum in the confederate states, he began his expansion campaign to the west, southeast, north and northeast, pummeling hapless American competitors. With the domestic markets rapidly coming under his control, he set his sights on dominating an even bigger retail battlefield -- the world.

How has Wal-Mart accomplished so much in such a short period of time? How important is the influence of their founder, Sam Walton, to the ongoing success of the company? What do competitors, domestic and international, both small and large, need to know about the world’s largest retailer in order to compete effectively? What is the importance of their culture to the success of the company?

In my book, What I Learned From Sam Walton: How to Compete & Thrive in a Wal-Mart World, I answer these questions as I provide you with an insider’s perspective into what you are up against as you try to compete in a Wal-Mart world and survive. I‘ve chosen the acronym P.O.C.K.E.T.S. as a focal point for the book, because I know that for you to compete effectively you have to carve out a “niche” or “business pocket” in order to be successful. Each of the letters in the acronym represents a chapter in the book as follows: P. – Price, O. – Operations, C. – Culture, K. – Key Item Promotion/Product, E. – Expense Control, T. – Talent, S. – Service. For this article, I have used the POCKETS acronym as a framework to discuss some of the inside strategies and tactics used by Sam Walton and Wal-Mart that makes competition with them so difficult. The text that follows comes directly from my book.

Price
If it seems impossible to compete directly with big box retailers like Wal-Mart on price, the unvarnished truth is that it is!  The combination of their buying power of big brands, private label programs, off-shore manufacturing, distribution efficiencies, incredible technology, culture, expense structure, company owned truck fleet and low paying non-union jobs provide a vice-like grip on costs no competitor can match.  So the key to successful competition if you are a competitor is to differentiate your products, provide great service and don’t even think about trying to compete with Wal-Mart on Price.”

Independent Pharmacies are able to carve out a niche by providing unique products and services not offered by Wal-Mart.  I spoke to John Musil who is the president and owner of 10 community-based independent pharmacies in Scottsdale, Phoenix, and Payson, Arizona.  Musil, who is also the president of the Arizona Pharmacy Association, a state chapter of the National Community Pharmacists Association, has 17 pharmacists employed by his company, Apothecary Shops.  Arizona is a chain-dominated pharmacy market and Dr Musil has been able to compete successfully by developing a successful niche strategy.  Approximately 50 percent of his business is generated through specialized compounding of medications.  His pharmacies routinely receive customer referrals from area Wal-Mart Pharmacies because they don’t offer this type of specialized service. 

Because of its buying power, Wal-Mart can sell all of its products at retail for less than the price at which most of your wholesale distributors can buy the same product from the same manufacturer -- talk about a competitive advantage in the marketplace. Other retailers can and do buy products at Wal-Mart for resale in their stores for that reason. It’s scary to think small retailers might get better prices by purchasing directly from a Wal-Mart store then they can from buying from their own distributor/wholesaler network. Compete with Wal-Mart on price? As my New York friends say, “Fughedaboutit”!

Operations
The philosophy that high expectations are the key to everything forms a large part of the foundation of Wal-Mart’s achievement of standards of operational excellence. High expectations lead to higher productivity, which reduces costs. Lower costs allow for lower prices, which in turn build sales and profitability. Greater sales and profitability finance the opening of more stores. More stores enable greater economies of scale. Greater economies of scale lead to lower costs. It is a never-ending mission to drive costs out of the system, which in turn allows the company to pass the savings along to the customer. 

Wal-Mart has state-of-the-art technology, great locations and convenient store hours, but the key to their lock-step execution is their people. Always being in-stock is critically important, so they train their associates (employees) to re-merchandise promoted items and backfill empty shelves throughout the sales day. They sweat the operational details by ensuring that shelves and products are dust free, shopping carts are always available and that floors, windows, bathrooms and parking areas are kept clean. Register lines are minimized and new registers are opened as customer traffic demands. The rallying cry at Wal-Mart for store operations is “execution, execution, execution!” This must be your store operations standard as well. 

Does your operational execution project to your customers what it says on the sign in your window -- “Welcome, We’re Open for Business”? Or does your lack of commitment to store operations send the subliminal message to your customers, “Sorry, We’re Open for Business”? You’ve only got one chance to make a first impression on your customers. Make it a good one. 

Culture
When Sam Walton visited stores, the company associates would walk right up to him and strike up a conversation with no fear. He was so down to earth that people were attracted to him like steel to a magnet. The employees at Wal-Mart could tell he was genuinely interested in what they had to say. Sam was a people person and there was nothing he liked better than rubbing elbows with the troops. Upon arriving at a store, he would often pull the associates together in the front of the store and talk with them about the company. Before he left, he would always lead a Wal-Mart cheer.

Sam attributed some of the most innovative ideas the company had implemented directly to the associates. The idea for greeters at Wal-Mart was originated in a Wal-Mart Store in Crowley, Louisiana. Once Sam saw the people greeter for the first time, he was committed to implementing greeters across the chain, which he did immediately. As in this example, entrepreneurial thinking by the people closest to the action was not only encouraged; it was expected.

I heard Sam Walton at the Saturday Morning Meeting tell company leaders on several occasions to refer to and use the Golden Rule in their treatment of people. He believed in treating customers like neighbors or guests and the employees, his associates, like family. “Our people make the difference” wasn’t just a catch phrase to Sam Walton; it was a hard-wired cultural belief shared by company leaders to this day. Sam believed if you take care of your employees, your employees will take care of the customer and the business will take care of itself.

Key Item Promotion/Product
Everybody is expected to think like a merchant at Wal-Mart. In every department, from information technology to accounting to human resources, every associate at the headquarters must be a retailer first. They are expected to visit the company’s stores as well as those of competitors, know the issues, and have a point of view on key business problems. If you ask someone from the Wal-Mart Home Office what they do for the company, don’t be surprised if they tell you that they are a retailer. Trust me when I tell you that they mean it.

I think Wal-Mart’s fanatical focus on having all of its employees and vendors think like merchants is because they know that having the right products, merchandising them well and providing outstanding service are pivotal to creating an exciting shopping experience and building customer loyalty. Wal-Mart’s buyers and store managers do all they can to make their stores the destination of choice for value-driven shoppers. The price points are sharp and the merchandise is tailored to meet the needs of Middle America. This customer-centered focus gives customers the feeling, “why shop elsewhere?”.

Focusing on the customer is and always has been the most important element of retailing product success. Talk to your customers, find out what they want and buy to those perceived needs. A local retailer has a great deal more flexibility in selecting products and merchandising them to fit the needs of the customers in their own community. Big-box retailers can’t specialize to the extent you can. Leverage your own merchant skills by tailoring your assortment to best meet the tastes and preferences of the customers in your locale.

Expense Control
Company profits at Wal-Mart are derived through a combination of tough buyer negotiations on the front end and the company’s fanatical focus on controlling costs. The goal at Wal-Mart is to drive costs out of every area of the company’s operation, including stores, home office, distribution centers and fleet. Adding insult to injury, they then pass those cost savings along to the customer, putting competitors in a position where they can’t compete directly on price. It’s like a double whammy!

Their top management focuses constantly on managing payroll expenses. Work schedules must take into account the ebb and flow of sales volume throughout the week and within the day. Wal-Mart is disciplined in managing payroll expenses and that discipline is driven from the top. If sales are soft managers aren't hesitant to cut hours mid-week to ensure payroll budgets are met.

Wal-Mart’s distribution and logistics functions provide still another expense advantage for the company. They use an inventory management technique called cross-docking of merchandise in their distribution centers, which reduces the amount of time inventory sits idly on the floor in a warehouse. Using its own fleet of tractors and trailers, Wal-Mart replenishes its own stores 24 hours per day from its own distribution centers. Of course, the overall goal of distribution and logistics at Wal-Mart is to ensure the company shelves are always kept stocked.

 Sam Walton used to say overhead is one of the most crucial things any business has to fight to maintain profit margins. The Wal-Mart cultural expense philosophy is that every time they spend a dollar foolishly, they take a dollar out of their customers’ pockets. They sweat the details by getting everybody to try to save pennies, which ultimately leads to savings of lots of dollars. These savings are in turn plowed back into lower-priced products.

Talent
Sam Walton had a unique ability to gather a team of great leaders and to inspire them to focus on the achievement of a common cause. One of the greatest challenges he faced was gathering top executives who were willing to suppress their individual egos in favor of the overall Wal-Mart team.

 To understand the Wal-Mart staffing strategy, it is important to also understand its self-professed blueprint for people. The human resources function is actually called “People.” The people strategy at Wal-Mart has three components: hire the best, provide the best training, and be the best place to work. Wal-Mart believes in hiring a diverse associate staff, and the stores reflect a decent cross-section of the demographics of American society.

 With over one million employees, Wal-Mart is the largest private employer in the United States, second only to the federal government in the sheer number of people employed. With some stores experiencing turnover as high as 300 percent annually, real issues exist simply to fill work schedules with qualified associates. People are their greatest asset. But, I think, at the same time and because of turnover, people may also be their greatest liability. Wal-Mart’s appetite for quality people is virtually insatiable. You see, just one of the large Supercenters may have sales in excess of $100 million and employ as many as 600 associates. To supervise that large a store requires as many as eight to nine assistant managers, two co-managers and the store manager. Because of its size and the turnover of staff, Wal-Mart must hire huge numbers of people. Under those circumstances, maintaining quality is almost impossible. You can bet Wal-Mart is aggressively pursuing turnover control, especially when you realize the costs associated with it.

Service
Pharmacies are a good example of a retail specialty which feels the pinch when a Wal-Mart Store opens in town: many experience soft sales of their front-end general merchandise items.  Fortunately, independent and chain drug stores for the most part have been able to maintain strong sales of prescription drugs due to the convenience of their locations, personalized service and low consumer price sensitivity.  Stephen L. Giroux, R. Ph., a Board member of NCPA (National Community Pharmacists Association) stated, “In 80 to 90% of the pharmaceutical marketplace the price is controlled by an outside force, i.e. third party insurance, so 80% to 90% of the people walking in have a prescription card dictating what they will pay in terms of co-pay.  Therefore the price competition is a bit removed from the market place and we are more focused on service.  An independently owned business can survive and in fact thrive in a service environment where you are only competing on the basis of service level and you can compete against the big boxes very, very effectively.”

If Wal-Mart’s arrival in town is the catalyst for your business to start improving customer service, it is in all likelihood too late. A good merchant by definition should have been providing great service to customers already. Once the big box arrives, it is too late to atone for past service sins, and you will experience payback from customers who are well aware that they have been historically slighted.

In reality, in retailing, you need your customers much more than those customers need you. Repeat business is the key to growing sales consistently quarter after quarter, year after year. When given a chance to provide great service, take advantage of each and every opportunity to do so. Great service is a key component in achieving great sales.  Sam Walton built Wal-Mart into the company that it is by living the philosophy, “there is only one boss, the customer, and he or she can fire everybody in the company from the chairman down, simply by spending his or her money elsewhere.”

 In Conclusion
The term “civil war” is literally and figuratively an oxymoron. In a literal sense, there is nothing civil about war. Figuratively speaking, retail is a war for survival. For business competitors, there is nothing civil about Wal-Mart’s effect on small and large competitors around the globe. In my book, I share the strategies and tactics you are up against as you try to compete, survive and thrive on the retail battlefield in a Wal-Mart World.

 Editor’s Note: Excerpted with permission of the publisher, John Wiley & Sons Inc., from What I Learned From Sam Walton: How To Compete and Thrive in a Wal-Mart World. Copyright (c) 2004 by Michael Bergdahl.  This book is available at all bookstores, online booksellers and from the Wiley Web site at www.wiley.com.