Goldman Sachs recently changed their advice on Wal-Mart stock from “buy” to “neutral,” and it wouldn’t be a surprise to me if they changed it to “sell” over the next few quarters. In fact, it seems like the heyday of the big box stores like Wal-Mart, Target and others may be coming to an end.
One of the appeals for stores like these is that you could get everything you need in one stop. I believe that this led executives to think that they could then ignore the need for customer service. At the same time, they could also please the shareholders by driving down labor costs, by having as few employees on hand as they could get away with and hiring part-time so as to avoid the requirement to pay benefits.
Understaffing and underpaying employees as Wal-Mart, Target and others do isn’t the sole reason for the decline of a business, but it is a big factor. In my years working in corporate America, I’ve often heard the phrase “do what’s right for the company.” This slogan is supposed to be a reminder to workers to keep the best interests of the company in mind. Yet far too often, a corporation fails not only to do right by the employees, but by the customer as well.
Take Wal-Mart as a prime example. I very rarely step foot in the store even though there’s one just minutes from my house and other retailers aren’t as convenient. Shopping on weekends or during the evening? Forget about it. Good luck getting in and out with everything you need in under 30-45 minutes when you have to deal with unstocked shelves and long waiting lines to check out, thanks to deliberate understaffing. The Walton family is worth more than almost half of America, it really wouldn’t hurt them to hire a few more people and perhaps pay them enough to care about customers.
So why are there often only 8 or 10 out of 50 open registers (if you’re lucky) on a Saturday afternoon or during the holidays? A few years back, I worked for Wal-Mart as an asset protection officer (a fancy word for undercover security). During my brief stint there, it was explained to me that management’s bonuses were based on meeting a number of goals, including sales and labor costs. From the store manager up through the district and regional levels, they were under constant pressure to have maximum sales and minimum labor costs. In turn, this created higher profits and greater dividends to the shareholders. Failure to please shareholders results in executives being forced out. We saw this happen with the naming of a new CEO, Doug McMillon in February, as well as the recent resignation of Bill Simon ahead of the 2nd quarter earnings report.
These shakeups aren’t confined to Wal-Mart alone:
Wal-Mart’s sales have declined for five straight quarters, leading to shakeups at the executive level.
Target’s CEO left earlier this year amid disappointing sales results and a data breach that affected millions of customers.
Several sectors are benefiting from widespread lack of interest in Wal-Mart and Target, according to Goldman.
Dollar stores, drug stores, and warehouse clubs “are taking share from broad-assortment retailers,” the analysts write. (Source)
Companies like Winco, Costco and smaller businesses are slowly but surely taking away the market share from Wal-Mart and other retail giants. After all, what good does having the lowest prices do you if customers are shopping elsewhere because the product isn’t on the shelf, or because it takes too long to check out?
Ideology aside, why would I want to purchase fishing tackle at Wal-Mart if there isn’t anyone in the section who knows anything about fishing, the lures I’m looking for aren’t stocked, and the fishing license machine is suspiciously broken yet again? Why would I purchase a TV or a cellphone from the electronics section if there’s only one employee there and they’re too busy with other customers to answer my questions?
Combine these frustrations with the ongoing spotlight on these companies over labor practices and you can see why they’re in decline. Personally, I’ll be happy to see the end of big box store dominance and more of the market share return to smaller businesses. The only question that remains is will these businesses acknowledge and mend the error of their ways, or will greed and unwillingness to change be their ultimate downfall?
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