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article imageQ&A: How Walmart's workforce is beating Amazon Special

By Tim Sandle     Mar 18, 2019 in Business
Walmart has recently seen earnings growth, much of this fuelled by online growth and based on investments in its workforce. This means, according to Micah Rowland of Fountain, Walmart starting to challenge Amazon online.
Walmart recently blew past expectations with its Q4 earnings release. The data showed how comparable-store sales climbed 4.2 percent - far above the 3.2 percent estimate - while e-commerce sales jumped 43 percent, reflecting the success of a new online strategy.
What is not often not stated in these dazzling numbers are the people behind this success - Walmart’s 2.2 million associates worldwide. In 2018, Walmart promoted 200,000 people and implemented a new “protected PTO” policy, where workers get 6 days a year to cover illnesses and emergencies.
These success factors are placing Walmart as a major threat to more established e-commerce specialists like Amazon. Micah Rowland, COO of the hourly and on-demand hiring/recruiting platform Fountain, says that, although Amazon’s held dominance in the retail industry for years now, their time could be up - and it very well could be this massive workforce and Walmart’s progressive employee policies that ultimately sets it apart.
Digital Journal: How much of Wamart's recent growth can be attributed to successful workforce management?
Micah Rowland: I believe that successful workforce management is a meaningful contributor, but not the largest or a primary one here - another way to say it is successful workforce management is a necessary enabler to executing on what looks to be a good underlying strategy for Walmart that is now paying off.
Looking at the results here, top-line revenue growth and comp sales are most likely driven by demand-side dynamics (more people buying more things from Walmart, adding up to more revenues) and by the success of the company's e-commerce and delivery strategies, which have been a huge area of investment in the past several years. The company's operating income also grew substantially (up 7%+ full-year and 35% quarterly over a year ago). My hunch is the workforce management strategies may have made a bigger impact here.
In both cases the company can't have executed well without a high-performing workforce, so a more contented, less-prone-to-turnover team certainly contributes to its successes.
However, I think that in the first case (comp sales increasing) it's hard to imagine that the team drove such substantial increases in top-line sales. That probably is attributable more to a) consumer spending increases, which have remained healthy, b) to continuing consumer cost-consciousness which results from slower-than-hoped-for income and wage growth and widening income inequality, and c) to overall economic growth.
In the latter case (success of e-commerce and delivery), the company's execution and reliance upon human capital/people are probably an even more contributing or enabling factor, but I think that the primary driver here is sound strategy and Walmart's investment in its ecommerce business and the infrastructure and capabilities that it takes to run delivery operations well. Said another way, had Walmart not invested in this strategy, you wouldn't be seeing these strong results even if the human resources management initiatives under discussion here had all played out the way that they have.
DJ: How important is e-commerce to Walmart?
Rowland: It is of crucial importance, maybe the most important strategic issue facing the company — if Walmart loses ground in the commoditized spend categories where it has dominated American commerce for many years, the core of its business will be undermined. As a relatively low-margin business, it wouldn't take much of a top-line slowdown to dramatically affect the company's profitability.
I believe that Walmart's core customer demographic has been slower to move its purchasing behaviors online because of lower internet and mobile device usage, which has helped protect their core business for a long time; but as online commerce continues to expand its reach to lower-income and different-purchasing demographics, this area becomes even more important to Walmart, who don't want to lose loyal customers to "more convenient" offerings from Amazon or other participants.
In the general retailer push to become "omni-channel," this is the biggest area where Walmart has lagged. I view the latest reports as continuing evidence that although they got a late start in the response to Amazon and the move to online commerce, Walmart's longstanding capabilities and excellence in marketing, merchandising and supply chain operations are serving it well to make major strides here. They're likely joining Amazon in taking share from other retailers who are slower to make the transition to omni-channel commerce rather than taking share from Amazon, but that is perhaps good enough for Walmart for now.
DJ: In what ways is Walmart challenging Amazon's dominance in retail?
Rowland: Simply by beginning to focus on and invest in the new retail arenas of online commerce, delivery, on-demand shopping, in-store pickup and the like — Walmart may arrest some of Amazon's growth because it is one of the few companies with the scale, balance sheet, and strategic foresight (late to the party, but better late than never...) to mount an effective response.
They are clearly responding in a variety of ways from inorganic growth (e.g. Jet acquisition) to organic investment (e.g. leveraging their existing network of Distribution Centers, Fulfillment Centers and stores in ways that may provide some advantages vis-a-vis an online-first business like Amazon) and I think that these results show that these investments are paying off.
DJ: Is Walmart a model employer?
Rowland: I think they aspire to be a model employer but are still working in that direction. They are suffering from (and trying to make up for) many years of obvious mis-steps which seem to have stemmed mostly from managerial neglect of some HR issues (i.e. not closely enough managing and providing oversight at the team leader/shift supervisor/store manager level to make sure that front-line employee management was conducted with the right level of care and sensitivity across the board).
It also may have stemmed partly from a fundamentally adversarial relationship with front-line employees and labor. It's very easy for a large retailer to think of labor as a pure cost center - much more difficult to do that than to identify sound strategies to create identifiable incremental value out of incremental investments in the workforce in a way that improves shareholder returns directly.
I also think that Walmart is a lightning rod for labor issues as the largest private employer in the country and one that definitively relies on labor from the lower-skilled end of the labor spectrum. They get less credit than they should for the huge effort it takes to manage such a large, distributed, and low-wage workforce; and there is more attention paid to failures when they do happen - whether purported/alleged failures or real and obvious ones.
DJ: Where will digital transformation take Walmart next?
Rowland: My guess is they will be seeking ways to make the best use of their unique assets in ways that will give them an edge over other competitors (i.e. a much more extensive brick-and-mortar presence, a much more international presence, and plenty of cash to invest in infrastructure and technology).
Presumably in everything from core marketing and merchandising (using machine learning and large-scale data modeling to inform in-store stocking and pricing strategies) to supply-chain (self-driving trucks and "smart" or next-generation-technology-enabled supply chain links) to fulfillment (on-demand pickup, delivery, perhaps even drone-enabled delivery, etc), they will be investing in all the leading-edge retail technologies and looking for the ways that they can participate and win that others without their reach, scale or capital won't be able to match.
DJ: Will physical stores to continue to be important to its performance?
Rowland: Absolutely. Not only essential in that they are by far the largest contributor to top-line and bottom-line volume and results, but also in the sense that they constitute a unique asset that no one else in the industry can draw on. In that sense physical stores are not only important for what they contribute today, but for what they can be made to contribute in the future as the business model continues to evolve and adapt.
DJ: Are there any other main competitors to Walmart?
Rowland: Outside Amazon, no company comes to mind that I would put in the same category: a broad retailer who operates at scale with multiple modes of consumer behavior and across numerous categories spanning consumer durables, fast-moving consumer goods, grocery/fresh, and many others as well. Walmart has broadened its scope and the arenas in which it competes in recent years, in contrast to other players who might have tried to take a similar tack (e.g. Best Buy) but have struggled along with the rest of physical retail and have not made as broad or multi-pronged a set of investments as Walmart has.
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