WELCOME: Bill greets ASDA shoppers in Manchester
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At ASDA the company was selling men's jeans for about $24 after paying $15.31 per meter for just over 45,000 meters of material to make them. Then the buy was moved to Bentonville, and the conversation went something like, "We'd like 5.5 million meters, please. Now what's your price?" Try $5.21 per meter. As a result, ASDA slashed its retail prices in half and upped its annual jeans sales to 1 million, from 174,000. ASDA is acquiring some 2,000 products from Wal-Mart's global network, and its gains might have set off a consolidation spree. Last week, Morrisons, the U.K.'s fifth-largest chain, launched a takeover offer for Safeway, the fourth-largest. ASDA could join the fray.
ASDA is making its mark on Wal-Mart, too. ASDA's George brand of apparel is one of the most popular private-label lines in Britain, generating sales of around $1.6 billion in 2002, and Wal-Mart recently launched it in the U.S. "We're selling apparel anyway," says Claire Watts, Wal-Mart's fashion boss. "Would it kill us to be a little more up to date?" Wal-Mart is also importing ASDA's recruiting philosophy, "Hire for attitude, train for skill." Labor is a particularly ticklish subject at Wal-Mart because unions have been trying to organize its U.S. stores. That effort has been unsuccessful so far, in part because Wal-Mart's wages are competitive with other retailers'. But the two most frequent complaints made by Wal-Mart employees to TIME — low wages and morale-killing store managers — recently factored into a labor case the company lost in Oregon. A jury found the company guilty of requiring associates to work unpaid overtime. The company plans to appeal; some 40 other wages-and-hours lawsuits are pending. Wal-Mart says it doesn't underpay employees, and that it's a good place to work. The company will enroll 5,500 people (most from store ranks) in its management-training program. "If the jobs are so bad, why are so many people working for Wal-Mart?" asks Charlyn Jarrells Porter, the company's head of personnel.
There are no such labor issues in China. It turns out that the Chinese make the best capitalists, and the most fervent believers in the Wal-Mart culture. At the store in Shenzhen, local managers hold Ping-Pong tourneys, stage fashion shows and have clerks hawk products like paper towels in front of a large display. And that's just on Tuesday. The store even has its own fight song, Marching Into a New Era. ("My heart is filled with pride ... I long to tell you how deep my love for Wal-Mart is ... ") Wal-Mart plans to increase this year, from 25 to 40, the number of stores in China. In China's three main cities, according to a McKinsey study, increasing wealth will support 250 hypermarkets among the competing retailers. The company introduced the Walton Institute, a program to teach local managers the master's Three Basic Beliefs (respect for the individual, service to our customers, and to strive for excellence), the Sundown Rule (any employee or customer request must be addressed before sundown) and other cultural foundations.
Walking into a Wal-Mart Supercenter in Fort Worth, Texas, CEO Scott says he misses the old days a little bit; when Wal-Mart was an underdog, "you could really go after a competitor." Now the company no longer shows comparison-shopping baskets to demonstrate that Wal-Mart has lower prices than competitors. "It just looks like we're picking on people," he says.
Nevertheless, Wal-Mart is still pummeling the competition. Over the past two years, Kmart filed for bankruptcy, and Ames and Bradlees, once U.S. powerhouses, closed up shop. Wal-Mart is quickly adding scalps in the grocery industry too. Wal-Mart's next competitive weapon is advanced data mining, which it will use to forecast, replenish and merchandise on a micro scale, so that even stores close to one another could have substantially different offerings. By analyzing years' worth of sales data — and then cranking in variables such as the weather and school schedules — the system could predict the optimal number of cases of Lucozade, in what flavors and sizes, a store in Canterbury should have on hand the Friday before a bank holiday. If the weather forecast suddenly called for temperatures 5C hotter than last year, the delivery truck would automatically show up with more.
The company calls the strategy "the store of the community." The principle is as old as shopping: customers differ significantly depending on where they live, what they earn and other factors. But the differences are far subtler than anyone ever imagined. The company has been analyzing every purchase made over the past 10 years, looking at the relationships between the items people buy and hundreds of other variables such as time of day and price. The data miners are constantly searching for exploitable relationships — say, between sales of cameras and atlases. Or take something as pedestrian as laundry detergent. Wal-Mart used to stock its stores all over the U.S. by using one of 18 basic display "modulars" for detergents until one of the buyers began to analyze the numbers. Now there are 288 of them.
One can think of Wal-Mart as a huge pipe organ with thousands of stops. On a busy shopping day in November 2001, the system was reporting slow sales of a boxed computer-and-printer combo for which merchandisers had had high hopes. But one location was bucking the trend. A quick call from headquarters determined that the store manager had cut open one of the stacked cartons so shoppers could see they got both machines for one price. Soon a message went to all other stores: Open a box. Sales began to move immediately.
That cycle of high-powered logistics engineering and penny-squeezing huckstering remains retailing's most potent weapon. UBS's Kristiansen sees no reason why Wal-Mart can't sustain earnings-per-share growth of 15%.
Scott, who earns less than most other Fortune 500 CEOs, was leaving a store not long ago when he stopped to chat with one of the many senior citizens who work as greeters. They are a fearless lot, and the old gent teased the boss with a question: "Did you give everyone a big raise?" Scott returned a look of mock horror. "Are you kidding me?" he said. "This is Wal-Mart!"