Winning Against Big Odds
By Cord Cooper

Wal-Mart is systematically killing small merchants, right? Yes and no, says Michael Bergdahl, a former Wal-Mart executive who worked with Sam Walton.

Though the mega-retailer has sent many small fry packing, chains and independent stores are going head to head with Wal-Mart and thriving, Bergdahl says in "What I Learned From Sam Walton."

What sets the winners apart? These principles:

Differentiate to compete. Strong rivals offer products and services that Wal-Mart doesn't. A prime example: pharmacies.

Though Wal-Mart does a brisk pharmacy trade, nearby independent and chain drugstores are still able to compete. Though some have soft front-end sales, they do well with prescription drugs by offering personalized service and longer hours. Wal-Mart pharmacies have restricted hours, in many cases.

Other stores competing with Wal-Mart blend service with a deeper product mix, Bergdahl says. Though Wal-Mart has a raft of specialty divisions, most offer product variety but limited assortments. The focus is on breadth, not depth.

That can be "good news for competitors," he said. "Capitalize on your pluses by providing products and services" which are more narrow and cater to the tastes of local customers.

When fighting Wal-Mart, specialization is all. Case in point: a hardware store in a small New England town. Wal-Mart moved in and beat the store's prices. The store fought back with inventory and service - and won.

The hardware store's plumbing department was well-known, so it beefed up its product line. It also strengthened its rental department, renting everything from bolt-cutters and backhoes to specialty items such as tents and wedding fountains.

A quick caveat: The hardware store was strong on service to begin with. It merely sharpened its edge. If you wait for Wal-Mart to arrive before focusing on service, it's over, he says.

Create your own alliances. "Form vendor partnerships with your network of suppliers, or join a buying co-op that provides some of the same tactical advantages," he advised.

"When you're successful, your vendor is successful and vice versa," so build a two-way street with suppliers, he said. Focus on key-item promotion, and ask vendors to supply in-store product training for workers.

"Ask suppliers how to differentiate your product assortment, and verify that your current mix provides differentiation," he advised.

Also ask about suppliers' private-label programs.

Work the culture. Tie performance standards to sales: dollars per hour or units per transaction. Link reward systems to productivity goals.

Turn employees into a first-rate display and promotion team. Hold divisional revenue contests and have workers compete for quarterly rewards. The key: Offer meaningful rewards.

Make sure "managers (are) dealing with nonperformers and recognizing the stars," he said.

Also, "establish the same standards for customer experience at every location," Bergdahl stressed.

The idea that Wal-Mart is killing small merchants is both hit and myth. To be sure, the giant has closed up a lot of smaller shops. But in many cases those merchants didn't know how to compete, says Michael Bergdahl, a former Wal-Mart executive who worked with Sam Walton.

A number of independent and chain stores are thriving in the shadow of the big box, Bergdahl says in "What I Learned From Sam Walton." They're holding their own, he says, by consistently using these principles:

Be tough on expenses. "Develop a 'wastebuster' expense-reduction program and get employees involved," Bergdahl suggested. "Manage your schedules to avoid having employees work overtime. Place the appropriate emphasis with your staff on shrinkage control.

"Ask employees to contribute one good methods-improvement idea per week, and reward (all) expense-reduction ideas that actually reduce costs."

Learn from competitors. To compete with Wal-Mart, rivals have mined Walton's strategies.

"He believed in looking at every area of the operation, all the time, with an eye on improvement," Bergdahl said. "Small improvements in a company the size of Wal-Mart, multiplied across the chain of stores, potentially represented (sizable revenue increases)." Walton empowered everyone to streamline methods and implement change.

Know the customers. According to a 2003 Wal-Mart customer loyalty study, these are the top five values customers look for:

1) Competitive pricing. Rivals usually can't beat Wal-Mart on price. But they can negotiate well with suppliers, control expenses and pass savings on to customers without getting into a price war. The kicker: Rivals can beat Wal-Mart on service.

2) In-stock products. This is a big-box hallmark, and rivals need to play the same game. Restock shelves throughout the day (not after business hours) and keep inventory control tight.

3) Product quality. This is where rivals have the edge, since Wal-Mart often doesn't stock higher-end brands. Order low-, medium- and high-end products and tout a selection for every taste.

4) Product variety. "Wal-Mart has space limitations within specific categories and because of sheer size can't buy to local preferences," Bergdahl said. His advice? "Cater to local tastes and expand products within categories."

5) Treating customers with respect. "One of the competitive advantages of a small business has always been its ability to provide personalized service," he said. "Each customer presents you with a unique customer-service moment of truth." Capitalize on it.

Hire the best. "Remove recruiting obstacles and increase the speed of filling open positions," he advised. "Cast your hiring net wide and hire from a diverse pool of people," including competitors, he stressed. In short: "Believe in people more than they believe in themselves. Expect the best."