by Tiffani Bova
AMAZON BUYS WHOLE FOODS
Walmart, unlike many of its own past victims, was showing every sign of being willing to fight—and, more important, to change. In fact, Walmart had been watching the Amazon threat since at least 2014 when C. Doug McMillon assumed the role of company CEO.
Across almost all categories, we’re seeing growth. The food business, in particular, has accelerated.
—C. DOUG MCMILLON, president and CEO of Walmart
The Walmart-Amazon rivalry may have begun as one of brick-and-mortar versus online retail, but it wouldn’t stay that way for long. Walmart made its own foray into online retail when it bought online shopping site Jet.com for $3.3 billion in August 2016 and immediately put its CEO, Marc Lore, in charge of Walmart’s e-commerce business. It was Lore who immediately matched Amazon by offering free two-day shipping (with no membership required) and tripled the size of Walmart’s online offerings.
The success of this initiative likely saved the day, a year later, when Amazon announced its Whole Foods acquisition. News of Amazon encroaching on Walmart’s physical turf, and its grocery business, which was Walmart’s most valuable growth engine, caused Walmart’s stock to drop 3 percent the following day. But Walmart was prepared. Within twenty-four hours of Amazon’s announcing its Whole Foods deal, Walmart made an announcement of its own: it had acquired apparel retailer Bonobos for $310 million, which increased Walmart’s inventory to sixty-seven million different items on its website. By the end of the week, Walmart’s stock had bounced back and was 14 percent higher than at the same point the year before.
The most obvious part of the acquisition—Bonobos’s extensive online operations—was actually the least interesting. As the New York Daily News noted: “Bonobos may have built its brand on the back of a successful online business, but it also has a chain of equally successful retail stores including a number of ‘pop-up’ stores in Nordstrom. Thus, the acquisition brings a unique capability to Walmart—best practices in managing two very distinct channels in tandem, not separately as has been the case for 99 percent of all retailers to date.”
Bonobos’s innovation was the “showrooming concept”—a men’s apparel store that only had product to look at, and try on, but not purchase, requiring customers to complete their order online. Bonobos basically built an industry-leading, “operationally efficient” supply chain for its brand, not stores—it eliminated the issue of overstock, inventory control, and expensive square footage. It was able to use this showrooming concept to its advantage, and Walmart wanted in on it.
Showrooming is the practice of examining merchandise in a traditional brick-and-mortar retail store or other off-line setting, and then buying it online, sometimes at a lower price.
CLICK AND COLLECT
Walmart’s spending spree has been supporting its new “click and collect” grocery strategy, which is leveraging new technology capabilities to improve the Customer Experience and push toward greater Customer Base Penetration. Walmart has introduced geo-fencing to notify its store personnel when customers are in the store, to retrieve their orders, and twenty-four-hour kiosks that automate grocery pickup, all with the goal of optimizing its sales experience both online and off-line.
Walmart’s strategy was becoming clear: even as Amazon was racing to build a greater brick-and-mortar presence, Walmart, with its forty-six hundred mega-stores (plus a few hundred more from other acquisitions, such as Bonobos), was already there—an estimated 90 percent of all Americans live within ten miles of one of its stores—and Walmart was going to put that giant footprint and sales capability to use in entirely new ways.
In particular, Walmart has embarked on a new sales strategy. If Amazon is targeting a future intersection of brick-and-mortar and online retailing, starting from its dominance on the online side, Walmart appears ready to win that race from its even greater dominance on the brick-and-mortar side combined with online and other innovative sales concepts.
COMBINATION + SEQUENCE
The first step was integration—sequence matters. Walmart has announced that it will combine, for the first time, its legendary buying process for its stores with the buying it does for its website—a significant undertaking when pursuing sales optimization.
Until now, the company has kept those two operations apart. This integration will not only reduce redundancy and cut costs, but for customers it will make the interface between the physical and virtual Walmart experience nearly seamless. It is also expected to attract vendors who have been wary of the smaller volumes on Walmart’s website versus the stores. That may also help close the inventory gap with Amazon.
Speaking to analysts in August 2017, McMillon declared that Walmart’s metamorphosis had just begun. Under a new motto of “making every day easier for busy families,” McMillon announced a number of new initiatives to Optimize Sales, including:
More delivery of Walmart.com orders by staff from nearby stores.
The construction of automated “pickup towers” at approximately one hundred Walmart stores around the United States, “where customers can pick up their orders within a matter of minutes.”
Further integration of store and online purchasing, including “Easy Reorder” to allow customers to view in one place all of their most popular purchases.
A new program that enables parents and students to type in their zip code and teacher’s name and find out their required class supplies.
Walmart is expanding its online grocery delivery service to a total of 100 metropolitan areas by the end of 2018—a push that will help the retailer reach 40 percent of American households.
Will this be enough to take on such a fast-moving, innovative, and aggressive machine like Amazon? Only time will tell, but early signs show that Walmart is more than holding its own as other large retailers continue to struggle. In its third quarter in 2017, its U.S. sales were up 2.7 percent and Walmart international saw sales rise 4.1 percent—its thirteenth straight period of growth driven by e-commerce and food. Online commerce, which now has about seventy million items (triple the number a year ago), rose 50 percent in the United States alone.
For a leviathan like Walmart to decide to revolutionize its entire sales apparatus in real time and attempt to race a company like Amazon into the future is a stunning decision. It was confronting the “Seller’s Dilemma” head-on. While the Walmart story relied on mergers and acquisitions to modernize its technology, infrastructure, and operations, all were done in the spirit of optimizing sales and improving performance against a formidable competitor. Now, other industry players are upping their game to compete against Amazon and Walmart—in December 2017 Target acquired Shipt Inc.
Next up will be China and Walmart’s moves against Alibaba, another formidable competitor like Amazon. A recent announcement by Alibaba to invest $2.88 billion for a major stake into Sun Art Retail Group—China’s largest operator of Walmart-style superstores, shows once again the power of online and off-line sales to become more effective in meeting customers where they want to shop.
WALMART
KEY TAKEAWAYS
This story is a great example of how Walmart was able to navigate challenges from competition and a shifting market context, but few other companies have the ability make big M&A investments like this to fill out a product or capability portfolio. Even if you don’t have the capital to use M&A in this way, what you can and should take away from this is why it did it. It was being hyper-focused on changing (context) desires of its customers. It was unwilling to lose to a competitor based on things within its control. It understood what needed to change and focused on the best way to get that done. In this case, it just so happened to be a combination of internal changes plus very specific acquisitions.
Like PayPal, Walmart looked to the sequence in which it made changes to the business as a way to help it be more successful with
its acquisitions. It took organizations, functions, and buying processes and modernized them to accommodate the new capabilities coming its way via its acquisitions.
Although I was unable to cover all that Walmart is doing specifically to improve its sales performance and customer experience, the investments it is making are extensive. It continues a massive strategic and operational overhaul, designed not only to survive in an era of retail transformation and changing customer expectations but to fuel additional growth and attract new customers. Its investment in a seamless digital and physical shopping journey is to spur growth and to increase its U.S. revenue from online purchases to 40 percent.
STORY
3
WELLS FARGO
A RHYME IS NOT A REASON
Life imitates Art far more than Art imitates Life.
—OSCAR WILDE, “The Decay of Lying: An Observation”
GLENGARRY GLEN ROSS IS A 1984 Pulitzer Prize–winning play by David Mamet that was made into a film in 1992. One could argue that the movie is one of the most unflattering depictions of the job of being a salesperson Hollywood has ever made. A group of desperate Chicago real estate salesmen are driven to engage in any number of unethical, illegal acts—from lies and flattery to bribery, threats, intimidation, and burglary—to sell undesirable real estate to unwitting prospective buyers.
Alec Baldwin’s character, Blake, a motivational sales trainer, gives an angry and verbally abusive speech to persuade them to close more sales or lose their jobs. “We’re adding something special to this month’s sales contest. First prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize—you’re fired!”
Baldwin’s character may have been fictional, but he exemplified—and inspired—a cutthroat, unscrupulous sales culture that even found echoes in Bernie Madoff’s infamous Ponzi scheme.
HIGH-PRESSURE SALES CULTURE GOES AWRY
Now, once again, the sales profession is challenged to defend its integrity from an example of life imitating art. Wells Fargo—founded in 1852 as a stagecoach express to carry valuable goods to and from the gold mines in the West—is now the world’s second-largest bank by market capitalization. After a flurry of acquisitions and mergers in the 1990s and early 2000s, then company CEO Dick Kovacevich had a unique view on the role of banks and how best to “sell money.”
Kovacevich looked for ways to make the banking experience similar to other business-to-consumer (B2C) businesses. In Kovacevich’s mind, bank branches were “stores” and bankers were “salespeople” whose job it was to “cross-sell”—which meant getting “customers”—not clients—to buy as many products as possible. “Products” for the bank were things like checking/savings accounts, lines of credit, and mortgages.
While Kovacevich thought he was getting the company focused on Customer Experience, in reality his mandates created a high-pressure sales culture. He had launched an initiative called “Going for Gr-Eight,” which meant getting the customer to buy eight products from the bank. Like at every other sales organization, there were status updates on daily goals. At Wells Fargo this one may have been a bit extreme. There was a branch manager call in the morning about “how you were going to hit your sales goal, and if you didn’t, you’d have a call in the afternoon to explain why and how you were going to fix it.” This kind of high-pressure management practice never ends well: it either pushes good people out of the organization because the environment becomes a bit too toxic, competitive, and aggressive, or people start gaming the system to meet the unrealistic goals. In this case, both happened—and continued even after Kovacevich retired, multiple employees and executives complained, and a new CEO, John Stumpf, came on board.
Maybe one of Stumpf’s greatest mistakes, which ultimately led to his downfall, was that he followed the practices that Kovacevich had put in motion. Even with the warning signs in the 1990s, nothing changed. The bad sales practices had become the new culture—and they ultimately came back to bite Wells Fargo. Stumpf never deviated from the sales practices Kovacevich had implemented—including those that were creating a less-than-ethical sales culture. There is no way to know for sure why these sales practices continued, but this statement made to investors unfortunately gives insight as to why management pushed for customers to get more products from them: “customers who had five products with Wells Fargo were three times as profitable as those with three products, while those with eight products were five times as profitable. Additionally, the more accounts a customer had, the less likely it was that he or she would switch to another bank paying higher rates of interest.”
Fast-forward to September 2016. The consumer-banking giant (and the biggest U.S. mortgage lender) was facing its biggest scandal in its history. It fired 5,300 people, most of whom were low-level employees, as well as 10 executives. Other executives chose to step down or retire. One of them was Carrie Tolstedt, executive vice president of community banking, who oversaw over 100,000 tellers and other frontline employees at more than 6,200 Wells Fargo branches. She was paid $9.5 million in 2015 because of her “strong cross-selling ratio” and her work “reinforcing a strong risk culture.” Wells Fargo CEO John Stumpf subsequently resigned under pressure. The board has since clawed back over $100 million in stock and executive compensation, paid $185 million to regulators, and settled a class-action suit for $142 billion.
What went wrong? How did Wells Fargo stray so far from its long-standing culture of integrity and putting the customer first? Wells Fargo has since acknowledged that its employees were under too much pressure to meet aggressive sales targets—sometimes as high as twenty banking products a day like a new account, a mortgage, a retirement account, or even online banking—whatever it took. During the investigation, regulators found that Wells Fargo had 3.5 million accounts that were potentially opened without the customers’ permission between 2009 and 2016. It also found that “the Bank’s sales practices were unethical; the Bank’s actions caused harm to consumers; and Bank management had not responded promptly to address these issues.”
According to Wells Fargo, its vision is to “satisfy our customers’ needs, and help them succeed financially.” The company emphasizes its mission: “Our vision has nothing to do with transactions, pushing products, or getting bigger for the sake of bigness. It’s about building lifelong relationships one customer at a time. . . . We strive to be recognized by our stakeholders as setting the standard among the world’s great companies for integrity and principled performance. This is more than just doing the right thing. We also have to do it in the right way.” Unfortunately, they lost sight of this vision along the way.
This one story uncovers the unsavory tactics used when faced with a highly aggressive sales culture. It can happen in any industry, not just banking. The lesson here is: even when pursing hyper-growth, never sidestep ethical behavior in pursuit of higher sales numbers and don’t ever create a sales culture that rewards bad behavior or forces people to game the system just to maintain their jobs. Do what’s right by your sales force so that they can do what’s right for your customers. Every time.
WELLS FARGO
KEY TAKEAWAYS
One of the biggest mistakes in reasoning made by Kovacevich was attributing causation to correlation when he noticed that customers with more accounts did more business with the bank.
A high-pressure, top-down management sales environment is not the only reason sales organizations can find themselves on the wrong side of doing what’s right for the customer and/or the business. Sometimes it can be the lack of training, tools, and processes, which are the reasons sales gets off track. Regardless of the reason, unethical behavior in sales must never be tolerated.
It would be fair to say that Wells Fargo wanted to deliver a better Customer Experience than its competitors. It would also be fair to say that they were very focused on Customer Base Penetration and Product Expansio
n by trying to inspire existing customers to buy more products from them. All three of those paths plus Optimize Sales in combination can be a game changer if done well. However, Wells Fargo failed, and failed miserably, on the (internal) people side of those sales efforts. The pressure from above to hit unrealistic sales targets, coupled with a complacent management team, created the perfect storm for bad (sales) behavior. If you have a situation arise like Wells Fargo did in the Optimize Sales path and you ignore it, it can and will wipe out all of the efforts and progress you have made in the other paths.
Sometimes bad sales behavior follows bad sales management. As leaders, it is our job to inspire people and help them realize ways that they can achieve their best performance. Overmanaging isn’t one of those ways. Command and control tactics are bound to backfire, whether you are managing a team of two or a team of two thousand. The last-mile employees, those who are facing customers, are the voice of your brand.
PUTTING IT ALL TOGETHER
He don’t put a bolt to a nut, he don’t tell you the law or give you medicine. He’s a man way out there in the blue, riding on a smile and a shoeshine. . . . A salesman is got to dream, boy. It comes with the territory.