Read the attached article about Wal-Mart. Then, identify three lean principles Wal-Mart has employed as stated in the article. Make sure to use the examples provided in the article to support your answer.

Wal-Mart Shrinks the Big Box --- Retail giant seeks to boost sales with fewer products, adding to tensions with vendors

Author: Nassauer, Sarah ProQuest document link

Abstract: Earlier this month, Wal-Mart Stores Inc. surprised investors by predicting that profits would drop as much as 12% next year as it spends heavily to raise wages, boost online sales and overhaul inventory systems.

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Full text: Strolling inside a Washington, D.C., Wal-Mart on a recent Saturday, Greg Foran, the chain's U.S. chief executive, saw something he didn't like: six bottles of ranch dressing on a shelf. "It's the same brand, exactly the same item, but it just comes in six different sizes," says Mr. Foran, who snapped a picture of the redundant display to send to the company's grocer managers. "I look at that and I say to our team, 'Do you really need six?' The answer is we probably don't."

At the U.S. chief's direction, the retail behemoth has already removed about 15% of store displays over the past year, and the average Wal-Mart supercenter -- home to around 120,000 products -- has about 2,500 fewer items than a year ago. "We were trying to fit 4 pounds of sugar into a two pound bag," he says.

Some of the changes have put Wal-Mart at loggerheads with vendors who worry they will result in tens of millions of dollars in lost sales. But fixing U.S. stores is becoming ever more crucial. Earlier this month, Wal- Mart Stores Inc. surprised investors by predicting that profits would drop as much as 12% next year as it spends heavily to raise wages, boost online sales and overhaul inventory systems. In the wake of the announcement, the retailers stock fell 10% in a single day and is on pace for its worst year since 1973. Through fiscal 2017, Wal-Mart will spend $2.7 billion to boost pay for store employees and another $2 billion on e-commerce investments as it attempts to shift from a slow-growing behemoth losing market share to Amazon.com Inc. and others into an online powerhouse. In the process, Wal-Mart will revive its efforts to target more affluent customers' households. "Globally we know growth will disproportionately come from middle- and upper-income households in the years ahead," said Wal- Mart CEO Doug McMillon in mid-October. The moves are part of a high-stakes pivot to tame the company's sprawling empire, organize unruly systems for managing inventory and keep stores neat and better stocked -- retail basics that Wal-Mart fumbled recently. To pull it off Wal-Mart needs to simultaneously draw more revenue from its U.S. stores, which account for about 60% of its sales. That leaves Mr. Foran and Mr. McMillon directing a complicated performance to improve stores and profits -- and asking thousands of suppliers to adapt. Vendors hope Wal-Mart's big investment in stores and online sales can make the company stronger in the long term. But news of next year's lower profits sent shudders through the supplier community, where there are concerns that there will be "increased pressure on suppliers to fund their problems," said one Arkansas-based executive at a large consumer-goods company. Such fears aren't without basis. In June, for instance, Wal-Mart asked vendors to pay a fee for passing products through Wal-Mart's warehouses and accept longer payment windows. Several large suppliers have told Wal-Mart flat-out that they can't agree to the terms -- saying the new contracts will increase the cost of doing business and force them to raise prices, according to email correspondence

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between suppliers and Wal-Mart viewed by The Wall Street Journal. "All of the changes we are asking suppliers to make are to be true to our business model and everyday low prices," says Deisha Barnett, a spokeswoman for Wal-Mart. "Change isn't always easy." While it is too soon to tell if the realignments will work, Wal-Mart's sales in stores open at least a year rose 1.5% in the most recent quarter, the fourth quarter of slight growth after a long period of declines. In the past, Wal-Mart has tried to boost sales by uncluttering aisles, targeting wealthier shoppers and cutting down on merchandise -- to disastrous effect. About six years ago Wal-Mart executives created "Project Impact," dropping all but the best selling merchandise in many parts of the store and adding in some pricier goods like skinny jeans and organic food. Sales fell as shoppers headed elsewhere. To convince executives to reverse course, former Wal-Mart CEO Lee Scott arrived unannounced at a company meeting holding two bags of groceries his wife had purchased at a competitor because she couldn't find the items at Wal-Mart, say people familiar with the meeting. Wal-Mart added back thousands of products to stores. "This time you are going to see a lot more nuance on these decisions," says Robin Sherk, a retail analyst at Kantar Retail, a research and consulting firm. Wal-Mart is using more and better data to decide which products stay on shelves and where to remove clutter, she says. A big part of the retread, set by Mr. Foran and Mr. McMillon, involves culling inventory from backrooms, and dropping some products altogether. In a key move that will change the look of the chain's stores, Mr. Foran is more than doubling the width of aisles -- to 10 feet from 4 feet, making it more navigable for multiple carts. Sendy Rivas, a 33 year old district manager for Avon, says that she has noticed fewer pallets in the front aisles of her busy local Wal-Mart in Valley Stream, New York. "It's so crowded it does help get through the store," says the mother of three. But the store, one of few Wal-Marts near New York City, is still so packed on the weekends that "I have to mentally prepare myself to come here," says Ms. Rivas. For the items that Wal-Mart is keeping on its shelves, the company is making significant changes to how inventory flows through its stores. Employees are starting to restock during the day, when customers are most likely to complain about missing items, rather than late at night. The new system has helped cut down on "manual orders," when store employees order an item beyond what the computerized replenishment system chooses. Too often employees reorder products that might simply be lost in clogged backrooms, but not needed, say Wal-Mart executives. In the latest quarter Wal-Mart's inventory increased 2.2% from a year earlier, slower than sales, which rose 4.8% -- a trend investors have applauded. New systems more accurately reflect what is in stock and what needs to be reordered, say Wal-Mart executives. "It's the objective of every retailer to grow their inventory slower than sales," said Mr. Foran. "We just carry too much inventory. And we carry too much inventory across most parts of the box. And so we do have lots of work under way to get that sorted." The 54-year-old New Zealander ran Wal-Mart's Asia business before taking over the U.S. stores last year. He joined Wal-Mart in 2011 after working at Woolworths Ltd., an Australian supermarket chain unrelated to the now defunct American company with a similar name where he rose through the ranks. He says he sleeps just four hours (10 p.m. to 2 a.m.) most nights and has visited around 200 stores since he took over the U.S. stores last July -- often surprising managers and employees with unannounced checks. According to suppliers and consultants, Wal-Mart has aggressively pruned the stores' promotional-sales space - - the bins, cardboard pallets and stands that sit alongside regular shelves and have long been believed to compel impulse purchases like cookies, soda or a new beauty product. Remaining bins are becoming lower, smaller and more uniform, say Wal-Mart executives. "It's a lot of pressure on my business because a lot of inventory has come off the floor," says an executive at a large food company. To make up for lost sales from promotional areas, the company is trying to stock more

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profitable package types and foods selling well in the refrigerated section of the store, says this executive. Wal-Mart is experimenting with lowering shelves near checkout areas by about one foot to make it easier for shoppers to see around the store. The seemingly subtle change, if rolled out across Wal-Mart's 4,600 U.S. locations, would wipe out hundreds of millions of dollars in annual sales of gum, candy and magazines, say people familiar with Wal-Mart's sales models.

The retailer is culling products that aren't big sellers and adding others to areas that are growing, like fresh produce, says Ms. Barnett, the spokeswoman. "These are not willy-nilly decisions, these are decisions being driven by customer behavior," she says. The store changes may be particularly hard to absorb for companies that sell in a single area of the store. Popcorn Indiana, a privately held company, counts on display space for at least 50% of its Wal-Mart sales, say people familiar with the matter. Over the last year the company has become more dependent on shoppers walking down the regular snack aisle to find its red, tractor adorned bags. The company's sales will likely fall 15% to $96 million this year, after growing each year since 2009, according to an estimate from Euromonitor International. A spokeswoman for Popcorn Indiana declined to comment.

At the same time, if selling fewer products and widening aisles helps with overall sales, that can eventually be a boon to vendors. "Wal-Mart's 'same-store sales' is the single most important number to big consumer-products companies," because it helps predict their own financial health, says Barry Calpino, a former vice president at Kraft Foods Group Inc. who is a consultant to large food companies. "They want Wal-Mart to do well," he says.

Wal-Mart can't afford to stick with the status quo. Its quarterly sales in existing stores have surpassed the 3% growth mark just once in the last six years. In April, the company raised the minimum hourly wage it pays store employees to $9 and said it would boost pay to $10 for many employees by February. The retailer's net income fell 15% in the most recent quarter.

"This is an important time in our history -- requiring all of us to think critically about our business," the company's CEO, Mr. McMillon, wrote in an email to staff earlier this month announcing the company would lay off 450 employees at its Bentonville headquarters. Separately Wal-Mart is shaking up its store management around the country. About 30% of its regional stores managers have left, said Mr. Foran in mid-October, speaking to investors. Several months ago a "few hundred" stores didn't have managers, but the company is filling those vacancies quickly, he said. "I'm guessing we've probably got 300 or 400 [stores] out there that I would really rate as a fantastic shopping experience," said Mr. Foran. "Then we have got a whole group in the middle that have improved, but we have got room to go further." Behind the scenes, Wal-Mart is also aggressively pressuring suppliers to spend more money to earn a spot on shelves. In June the retailer started mailing out around 10,000 contract renegotiation letters to suppliers asking many to pay additional fees to store their products in warehouses, as well as give the retailer more time to pay for the goods, according to letters reviewed by the Journal.

"Smaller suppliers will tell me if they push this out we will go out of business. We can't afford to give them these allowances" and sell at low prices, says Boyd Evert, a former consultant to Wal-Mart who now owns Harvest Revenue Group, a firm that represents many suppliers in negotiations with Wal-Mart. Wal-Mart has remained firm. In PowerPoint presentations and correspondence with suppliers, Wal-Mart employees have told vendors their cooperation will be considered during "line reviews," meetings that establish how much shelf space a product gets, according to emails reviewed by the Journal.

"What we are doing is what is happening across the industry," and so is bringing Wal-Mart in line with competitors, says Ms. Barnett. In some cases Wal-Mart is asking suppliers to offer lower prices on goods made in China to reflect a weaker yuan, according to a person familiar with the negotiations. "We fully expect our merchants to consider economic factors around the world as they make buying decisions

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and negotiate with suppliers," said Ms. Barnett. Suppliers already struggling because of changing consumer tastes will be especially hard hit as Wal-Mart cuts space, says a person familiar with Wal-Mart's supplier relationships. Wal-Mart sells about 20% of the magazines purchased in the U.S., says T.J. Montilli, a vice president at Pro Circ Retail Solutions Group, a magazine circulation consultancy. While he notes that retail sales of magazines have been in decline for the last four decades, Wal-Mart's new strategy, he says, "certainly isn't going to help." Mr. Foran has reminded his deputies that Wal-Mart is facing historic challenges. Millions of employees and customers are "relying on us to get this right," he says.

d Preview File Edit View Go Tools Window Help 1996 [O Sat 2:55 PM Sraj Akhalifah a Wal-Mart Shrinks the Big Box.pdf (page 6 of 7) Q Search ustomers are relying on us to get this rignt, he says. Less is More Wal-Mart is paring its inventory to better stay in line with sales. 8% Inventory 4 Revenue Change from a year earlier -2 15 10 2012 13 14 Note: For fiscal years ending Jan. 31 Source: S&P Capital IQ THE WALL STREET JOURNAL Credit: By Sarah Nassauer 21