SCDigest editorial staff

The News: Wal-Mart is aggressively rolling out a new store level strategy in which layout and merchandising decisions will be more tuned to local markets, with more merchandising decisions in the hands of regional and local managers.

The Impact: With slowing same store sales growth in the U.S. and some recent troubles abroad, Wal-Mart is looking for a new growth lever to retain its dominance – and Wall Street luster. The move may change how suppliers interact with Wal-Mart, and may open the door to new offerings that meet more niche market needs.

The Story: After many years of a heavy centralized focus for store planning and merchandising from Wal-Mart’s Bentonville, Arkansas headquarters, the world’s largest retailer has embarked on an ambitious project to tailor stores more specifically to local market needs, and push many decisions away from Bentonville and closer to sales regions and individual store managers.

The effort is being led by Eduardo Castro-Wright, chief executive of Wal-Mart’s U.S. stores. It is characterized in part by dividing the 3400 Wal-Mart stores in the U.S. into one of six formats based on local demographics and other factors. Each format will feature a different layout, merchandising selection, and staffing/training plans.

In this regard, it seems to mirror the strategy announced last year by electronics retail giant Best Buy, which launched a “customer centricity” program that similarly created specific store formats and merchandise based on local consumer base meta-types. (See Best Buy Moves to “Customer-Facing” Supply Chain)

Though Wal-Mart founder Sam Walton early on encouraged local managers to make smart store-specific decisions, before long power became very centralized within its headquarters.  This centralization strategy was supported in part by the powerful analytic capabilities from Wal-Mart’s huge data warehouse. As a result, Wal-Mart’s stores became “cookie cutter,” closely resembling each other across the country.

Mr. Castro-Wright was recently quoted in The Wall Street Journal as saying that as a result, “You end up under-serving everybody, because you don’t have the offering that is specific to that customer segment.”

Wal-Mart offered an anecdote to illustrate the point. An “Ant and Roach Killer” product that for years had sold well in the southern areas fared poorly in the Northeast. A local manager informed Bentonville that in that region, “roaches” were associated with dirty homes, making consumers reluctant to buy a product associated in that way. When the term roach was removed from the product, sales picked up.

Wal-Mart is now both tailoring stores to local market, and pushing more decision-making out into the field. Executives are being moved from Bentonville to regional officers, and store managers will have more authority to make decisions and push for merchandise they want in their stores.

The move comes as same store sales for Wal-Mart in the U.S. have slowed dramatically, down to 3% in 2005 from 9% in 1999. Part of this deceleration, of course, has come as Wal-Mart has continued to add stores closer and closer to each other, moving some sales from one location to another.

To many, the strategy makes great sense. “All retailing is essentially a local phenomena,” noted Richard J. George, Professor of Food Marketing at Saint Joseph's University, on the Retail Wire web site. “The key for Wal-Mart and any retailer for that matter, is to get the mix of standardized versus customized offerings correct while balancing market needs and maintaining supply chain efficiencies.”

Others note it will be a huge management and training change and challenge for Wal-Mart that may be difficult to execute effectively given the scope of the effort.

If successful, consumer goods suppliers may have to change the way they work with Wal-Mart, embracing a more regional strategy the way they do now with Kroger, for example. The move may also open avenues to smaller or more niche suppliers or products, locked out now under a national strategy and the gauntlet in Bentonville it takes to get a product on the shelf.

Do you think Wal-Mart’s strategy makes sense? Do you think it will be successful? Why or why not? Let us know your thoughts.