Sam’s Club steady in wake of exec changes
Change was in the air again this year at Sam’s Club as the warehouse club division welcomed yet another CEO and head merchant combination. In early 2012, Rosalind Brewer became president and CEO, and Charles Redfield was named EVP merchandising. The change could have had suppliers saying, “here we go again,” due to Sam’s history of senior leadership turnover. Instead, the transition was apparently painless for the 67% of survey respondents who sell products to Sam’s. Their responses were heavily shifted toward the strongest levels of agreement when asked whether the leadership transition was a seamless process.
The finding is noteworthy because a changeover in senior leadership can result in a new strategic direction that is potentially disruptive. However, in Sam’s Club’s case, it is enjoying solid sales momentum; and as Redfield has noted during several public appearances, his objective is to not screw it up. In fact, Sam’s is doing so many things right that new club growth is poised to accelerate in 2013.
Accordingly, an overwhelming percentage of respondents expressed the highest levels of agreement with the statement that Sam’s represents a significant distribution channel that will make a meaningful contribution to their companies’ growth in the next five years. And the good news for Sam’s as it looks to execute a 2013 growth plan that will involve a net increase of 10 to 15 new clubs is that suppliers contend they have a thorough understanding of the strategy senior leadership has developed to drive growth.
While suppliers’ overall view of Sam’s was generally favorable, it doesn’t mean there aren’t opportunity areas. For example, Sam’s has the potential to move more suppliers toward higher levels of agreement regarding the state of collaboration and merchant receptiveness to new ideas. Scores in these areas could be characterized as solid, but a relatively small percentage expressed the highest levels of agreement.
Where results were the weakest was regarding participation in a loyalty program in the process of being rebranded as Instant Savings following a launch several years ago as eValues. Less than ideal rates of supplier participation and a questionable return on investment by those who did participate prompted recent changes that look to be a win for members and suppliers. Initially developed as an exclusive benefit that could be leveraged to promote upgrades to the $100 Plus level, Sam’s has expanded eligibility to those at the basic membership level. Now with the new brand identity of Instant Savings, the program’s central value proposition is much clearer than it was under the ambiguous eValues moniker. The good news for suppliers whom Sam’s is dependent upon to provide the incentives that form the member value is that the offers they fund now reach Sam’s Club’s entire network of 47 million cardholders as opposed to the much smaller subset of Plus members.
Opportunity also exists with the Tastes ‘n’ Tips demo program. The potential exists for Sam’s to broaden participation rates and demonstrate a better return on investment from sampling activities, which are popular with members and add excitement to clubs.
Digital opportunity looms larger
Increased attention was given to Walmart’s multichannel efforts in this year’s supplier survey — and for good reason. Amazon.com is now in a virtual dead heat with the dollar store channel in terms of the retailer/channel that suppliers view as the most significant competitive threat.
Walmart suppliers are right to be concerned about Amazon.com given the pace at which the $48 billion company, now the nation’s 10th-largest retailer, is piling on sales and expanding its reach into new categories. Walmart’s online sales now total $9 billion, as Neil Ashe, president and CEO of global e-commerce, revealed recently.
Despite their concerns, the digital arena is an area of great growth potential, and suppliers are excited about the prospect, with roughly 75% of those surveyed indicating they already sell products online. However, survey results also show a large swath of suppliers who registered a middling level of agreement with the statements “Walmart is headed in the right direction in terms of its online/multichannel strategic initiatives,” and “my team understands Walmart.com’s various strategic initiatives and priorities.”
That a higher percentage of folks didn’t register a stronger level of agreement in these areas should be a source of concern for Walmart.com as it has aggressive growth plans in place and will need the support of suppliers to execute its strategies.
An area in which Walmart.com should feel encouraged is that 18% of suppliers expressed the strongest level of agreement with the statement that they view Walmart.com as an integral part of the new item introduction process. Another 22% expressed the highest level of agreement with the statement that they are highly focused on growing with Walmart.com. Unfortunately, 21% of respondents also expressed the highest level of agreement that Walmart.com is challenging to work with.
While the signals are certainly mixed, it is perhaps understandable given that the pace of change in the digital world can make it difficult to keep track of what’s going on. It was only two years ago that Walmart intensified its multichannel focus with the creation of its global e-commerce group. Ashe didn’t join the company until this past January, and the recent analysts’ meeting was his first time presenting a comprehensive overview of the strategy. Ashe gave investors plenty to feast on — describing Walmart’s global network of 10,000 stores, 200 million weekly customers and a commitment to building a next-generation global technology platform to capture a disproportionate share of a worldwide e-commerce marketplace McKinsey & Co. expects to reach $1.3 trillion by 2015.
“It is a fascinating opportunity that we are uniquely positioned to take advantage of,” Ashe said, adding that he is focused on, “how do we do it differently and better than anyone in the world.”
Perhaps the most intriguing development to date is a pilot program involving same-day delivery in San Francisco, Minneapolis, Philadelphia and Washington, D.C. The program leverages Walmart stores in those markets as fulfillment centers for popular products with carriers executing same-day deliveries of orders placed before noon. According to Ashe, with 4,000 points of contact throughout the United States, the service is something Walmart is uniquely capable of executing, and he described the company’s store network as the envy of the e-commerce world.
Supplier expectations offer insight at Walmart
Continued growth and increased competition from Amazon.com and the dollar stores. Improved in-stock levels offset by questionable in-store execution. Reduced buyer turnover and senior executives receptive to trading partner views.
Those are among a few of the key findings of the third annual Walmart Supplier Survey conducted by Drug Store News’ sister publication, Connecting Northwest Arkansas. Participation in this year’s survey increased to 219 respondents, compared with 194 last year, and was limited to those who occupy senior leadership positions at their respective companies and whose responsibilities for the overall Walmart business relationship enable them to offer an informed view on a breadth of topics relating to Walmart U.S., Walmart.com, Sam’s Club and Walmart International. Connecting Northwest Arkansas worked with Cameron Smith & Associates, the leading recruitment firm based in Rogers, Ark., to field the survey across a mix of large and small companies and a breadth of product categories comparable to the merchandise mix found in a typical Walmart store.
Nearly half of those who participated indicated they have worked with Walmart for 15 or more years, and three-quarters of respondents indicated that Walmart is their company’s largest account. Accordingly, this veteran group of CPG executives with considerable exposure to Walmart offered the view that despite some challenges, they expect continued growth from Walmart. That means in the years ahead roughly 10% of those surveyed said they would be allocating significantly more resources to Walmart, while 45% said slightly more. A large group (41.3%) will keep things about where they are.
Another interesting revelation this year is the extent to which Northwest Arkansas-based supplier teams are supplemented by additional resources at companies’ respective home offices. For example, about 27% of those surveyed said roughly 90% of the employees their company dedicates to Wal-Mart Stores are physically located in Northwest Arkansas, but roughly 40% said their Bentonville, Ark., team accounted for less than 39% of the resources allocated to Walmart.
Another area explored in this year’s survey was Walmart’s renewed emphasis on Every Day Low Price/Every Day Low Cost. These foundational aspects of the company’s business model are credited with driving improved financial performance and are supposed to yield supplier benefits as well due to the elimination of demand fluctuations within the supply chain that is caused by promotional activity. It hasn’t turned out that way just yet, with survey respondents offering a mixed view of the impact EDLP/EDLC is having on their business and relationship with Walmart. For example, survey respondents were nearly evenly split on the topic of whether Walmart’s adherence to EDLP/EDLC would contribute to an improved rate of profitability on their sales at Walmart. In addition, there was a core group of suppliers (15.3%) who said their ability to manage the business relationship was much better as a result of Walmart’s renewed emphasis on EDLP/EDLC, and 31.6% said it was somewhat better. However, nearly 30% said their ability to manage the relationship was now more challenging, and 23.3% said it was largely unchanged.
In addition, a little more than half of those surveyed disagreed with the statement that Walmart’s adherence to an EDLP/EDLC operating model going forward would contribute to an improved rate of profitability on their sales at Walmart. Meanwhile, a slightly higher percentage disagreed with the assertion that EDLP/EDLC would allow them to operate more efficiently. Said another way, a little less than half of those surveyed did agree that EDLP/EDLC is favorably impacting their ability to operate efficiently and more profitably.
Finally, suppliers were asked about expectations for marketing support. Nearly 24% said expectations had increased significantly, and 37.9% said they had increased somewhat, figures that might have been thought to be lower considering a lack of promotional price is supposed to diminish the need for advertising.
Those suppliers who’ve yet to see the benefits of EDLP/EDLC can take comfort in the fact that Walmart’s senior executives are willing to listen. The company rated very high in this regard, with the overwhelming sentiment among suppliers being that Walmart’s senior leadership is receptive to their views. More than 84% of respondents agreed with that sentiment. Walmart also can feel good about the perception held by 66.5% of respondents that buyers are willing to experiment with new products, services and merchandising strategies. In addition, nearly as many suppliers believe buyers’ ability to manage and grow categories has improved due to Walmart’s decision to participate in such data syndication networks as Nielsen and Symphony/IRI.