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		Has Project Impact been a success? Will it be successful in the long run? Vote and add your comments.
	79% think shelf TV will be at least somewhat successful. See full results below.

Supermarket News asks a question that is probably on a lot of people’s minds these days: “If Project Impact is succeeding, and shoppers still love a bargain, then what’s ailing Walmart?”

While [Walmart] officials express strong confidence in Project Impact, particularly for the long term — citing multiple financial and retail successes that they insist are only just beginning — disappointing sales and store traffic results in recent months have prompted the chain to tweak some tactics and reverse course on others.

The first casualty may have been Eduardo Castro-Wright, who was seen as the heir apparent for the top job at Walmart and has been the architect for Project Impact, but was replaced recently as the boss at Walmart US. This chart, noting the first-ever annual decline in comp store sales, shows the problem:

SN notes several things that could be mere implementation problems with Project Impact – SKU rationalization that may have gone too deep (or simply cut the wrong SKUs), a failure to recognize regional differences, not being aggressive enough in emphasizing winners in the ‘Win, Play, Show’ strategy. Such errors are inevitable in the rollout of any new strategy, and can be tweaked along the way.

But some of the problems may be more fundamental. Walmart has sought to increase its margins recently and has allowed traditional supermarkets to close the price gap. “Walmart is still a low-price leader but it's not the low-price leader,” noted retail analyst Burt Flickinger.

In another article analyzing Project Impact in The Hub, Chris Hoyt says that Walmart has allowed its operating costs to rise to a point where it no longer holds an advantage over its traditional store rivals.

The result is a significant reversal of the advantage that Walmart enjoyed in the early years: Now at 24.8 percent for Walmart versus 23.2 percent for Kroger, Walmart’s gross margin is at a serious 1.6 percentage point disadvantage versus Kroger’s — a difference just too big for recession-pressured competing shoppers to ignore for long.

The object lesson of the Walmart-Kroger pricing scenario is that, for whatever reason, Walmart allowed itself to deviate from its core strategy (“Always Low Prices”) and thereby enabled a major competitor to get its nose under the tent.

Another way that Walmart has deviated from the strategies that built its success, according to Hoyt, is in using ‘soft’ criteria to guide the Win/Play/Show segmentation, rather than relying on hard numbers, objectively applied:

How does one know why (or why not) one’s category is placed in the Walmart “Win” quadrant? That’s exactly the point. While Walmart does publish the criteria for its “Win” quadrant, it leaves this relatively open-ended, couched in subject-to-interpretation phrases like, “Consumers see Walmart as a credible destination” or “Volume contributes to price leadership position,” and so forth.

In other words, there is no longer a fact-based approach upon which one can rely. While there are obviously certain basics that must be in place even to be considered for Walmart’s “Win” quadrant, by leaving the final decision open to certain subjective evaluations, Walmart cleverly sets-up a competition among suppliers.

In this environment, “winning” will almost certainly include the extent to which category suppliers are willing to go “over and above” to help Walmart achieve its objectives. Translation: When all else is equal, adding incremental marketing or merchandising support can make the difference between being assigned to the dark-and-damp “Show” quadrant versus the sunny-and-eternally-productive “Win” quadrant.

Walmart has, in short, become much more like the retailers it has been creaming over the past few decades, a point not lost on the competitors, such as Kroger’s CEO:

“Walmart is a lot more consistent with a traditional grocery-supermarket operation than it is consistent with what Walmart used to do,” Dillon said. “It uses a lot more feature items. Sometimes those features are on for more than a week, but it's [still] feature items, and when you operate that way there may be items that come down in price and get a lot of publicity, but there are others that go up in price that don't get that much publicity. We see the behavior as a lot of marketing noise.”

I think part of the problem is that Walmart has so changed the retail landscape that it is now the Establishment rather than the upstart, and as such it now occupies the dangerous middle. Once, that was the turf occupied by mainstream department stores, with upscale stores like Nordstrom and Bloomingdales on one side and Walmart, Kmart and Target on the other. But today, Walmart’s old positioning has been taken over by Aldi and Sav-A-Lot, as well as dollar stores.

It’s instructive that the latest rankings of US retailers by NRF, while still showing Walmart miles ahead of any competitor, also record big increases by the dollar stores: Dollar General moved up from 35th to 28th, Family Dollar from 56th to 45th, and Dollar Tree from 76th to 61st.

And it may not be simply that Walmart has lost its low-cost leadership, but also that, because of Project Impact, they look like they’ve lost that leadership. Part of the intent of the project was to look more upscale – could it be that they succeeded too well? As an executive stated, the changes “came at the cost of a sense of ‘promotional intensity’ inside the stores.”

The problems that people are seeing and discussing at Walmart may be only partly a result of Project Impact. Or maybe there are no real problems at all (let’s not forget that the chart above shows $20b in operating income – who wouldn’t like to have problems like that?) But let’s make Project Impact the focus of a two-part exit question: Has Project Impact been a success? Will it be successful in the long run?

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Recent Poll


We discussed small TV screens that attach to store shelves and asked if they would be successful. “Will retailers and suppliers go for shelf TV?” A heavy majority said yes, though half see it as a niche medium.

• 29% Yes, it will be very successful
• 50% Yes, it will find a niche
• 21% No -- it won't find much adoption

We also asked if this should be viewed as a tactic for brand building or immediate sales impact, and therefore what budget should pay for it.

• 79% Immediate sales impact (trade promotion budget)
• 21% Brand-building (it's part of the national ad budget)

Among the comments:

• (The second question) is more of a creative question and the possible answers are both; brand building and immediate sales. A marketer will always look to build their brands where you can actually do it (in front of their targets: shoppers) and with a video-message you will naturally help to sell more products. But, if it is more efficient to do both in the aisle with, once again, the ideal target then marketers will direct funds to that location. The retailer will win in either scenario because more funds are coming their way.
• It will be interesting to see where they end up being placed on the shelves. Lower - for marketing to kids or higher up - marketing to adults. Will it be commercials or nutritional/healthy infomercials? I can see it now...video clip of Rachel Ray making a Trisket appetizer, right below the actual shelf of Triskets...

Follow-Ups

World Cup
Although, after teasing us, the US team did not go as far as its fans hoped (I’m still in mourning), the World Cup has been a huge success for marketers, and its growth in the US, as measured by broadcast ratings, has been very substantial, with about a third of the US population having watched at least some of the games.

The USA-Ghana game (sob!) was watched by the largest audience ever to see a soccer match in this country – about 19 million people, and ESPN ratings are up 58% over 2006. An interesting factor is the size of the audience watching online:

According to ESPN Research+Analytics’ analysis of Knowledge Networks data, Internet platforms (including streams on ESPN3) have boosted the networks’ World Cup reach by 20 percent over vanilla TV numbers. Out-of-home TV accounts for a 15 percent lift, although those furtive barroom sessions are higher (18 percent) on the East Coast, where the matches air during business hours.

All told, non-TV media makes up 32 percent of alternative viewership, with radio (8 percent) and mobile devices (3 percent) trailing the Internet. Live and replay World Cup matches have been viewed by almost 5.8 million unique viewers on ESPN3.com, generating 674.8 million minutes of viewing––or nearly two hours per viewer.

Adidas has also gotten quite a boost, despite complaints about the ball they produced as official supplier: “The company expects sales of $1.89 billion, including selling more than 20 million soccer balls and more than 6.5 million national team jerseys.”

Legal
There is lots of news on various legal fronts. We’ll start with Bristol-Myers’ former CFO and President, who were charged with fraud related to channel stuffing several years ago, and have reached agreements with federal prosecutors to pay fines and accept a deferred prosecution agreement, with the charges to be eventually dropped:

The case surrounded allegations that Schiff and Lane were involved in a scheme to conceal from investors that wholesalers were given financial incentives to spur the purchase of more products than they needed -- a practice known as channel stuffing.

Prosecutors said the practice allowed Bristol-Myers to exaggerate revenue by $2 billion and meet profit targets, artificially inflating its stock price.

In 2005, Bristol-Myers accepted a two-year probation from the Justice Department in a deferred prosecution agreement to avoid a possible trial.

Part of the Sarbanes-Oxley Act was shot down by the Supreme Court:

The high court, in a 5-4 opinion by Chief Justice John Roberts, found fault with some parts of the Public Company Accounting Oversight Board, which was created as part of Sarbanes-Oxley to combat corporate accounting scandals in the wake of collapses at Enron and WorldCom.

Congress had given the five-member board, a not-for-profit corporation, broad regulatory authority over accounting firms that audit publicly traded companies. Roberts said the structure of the accounting board violated constitutional separation-of-powers principles because it was too difficult for the president to remove board members. "The president cannot take care that the laws be faithfully executed if he cannot oversee the faithfulness of the officers who execute them," Roberts wrote.

The court, however, refused to strike down the accounting board in its entirety, saying the board's mere existence didn't violate the Constitution. {…}

Roberts said Sarbanes-Oxley "remains fully operative as a law." He said the unconstitutional provisions governing the board could be severed from the rest of the law.

Recently it came out that some of the ‘public’ opposition to new stores that Walmart wants to build was being manufactured by a PR firm hired by Walmart’s competitors. Now a couple developers who had projects fall through as a result of such tactics are suing Supervalu:

The suit filed Wednesday alleges that Supervalu secretly retained consulting firm Saint Consulting Group to drum up opposition to two planned Walmart Supercenters in suburban Chicago. Massachusetts-based Saint's website says it "specializes in winning zoning and land-use battles."

Forever 21
Forever 21 created some buzz when they bought up abandoned Mervyn’s locations in California, in a step toward transforming themselves from a teen specialty retailer into something closer to a department store. Now they’re taking another big step – moving into a 90,000sf location on Times Square.

Teens continue to swarm Forever 21's piles of inexpensive, high-fashion-imitating party dresses and tank tops. But moving into cavernous spaces, like the 90,000-square-foot spot near 46th and Broadway, is forcing the chain into new categories like menswear, children's clothing and beauty, where its hold on consumers is less certain.

"Filling a larger footprint with more of the same product is not a long-term strategy," says Jeffrey Klinefelter, senior analyst on the consumer team at Piper Jaffray. "We have to watch how their assortment evolves. It's unclear whether or not it's sustainable."

The Times Square store will be the brand's biggest location, taking over the space of a former Virgin Megastore. The store spans four floors and the equivalent of 1.5 football fields. The modestly sized street-level entrance gives way to three sprawling subterranean floors, with 151 dressing rooms and 32 cash registers.

The chain now has 480 locations and sales of close to $3 billion, up from $2.3b last year.

Kiosks
While kiosks and high-end vending machines are gaining favor in many retail locations, leave it to the government to make a mess of things. Pennsylvania, where all liquor outlets are state-owned and operated, has installed kiosks for buying wine.

…the kiosk's touchscreen guides the shopper through the wine selection process and offers food pairing tips. On checkout, the user is asked to scan his driver's license and credit or debit card, then must breathe into a breathalyzer unit to check for intoxication. A live agent at the PLCB looks at the shopper through a two-way video connection to personally ensure that the buyer is the person on the driver's license. The shopper then walks to the appropriate door on the unit, where a single bottle of the chosen vino awaits, while the rest of the bottles in the machine remain behind security gates.

To say the wine enthusiast community's reaction has been negative would be an understatement.

At the blog The Wine Culture Project, the kiosk has been singled out at the "worst wine idea of the year." Writer John Kafarski laments what it will do to the wine-buying experience, turning the product into "nothing more than soda in a vending machine." Shoppers will not be able, for instance, to look at a bottle, hold it in their hands and read the labels before committing to the purchase.

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Quickly Noted

The New Frugal: Tech-Savvy Coupon Clippers
Coupon use is on the upswing – not a surprise, given economic conditions. What may be a surprise to some is that much of the growth is in online coupons, and that growth is being driven by higher-income consumers. “Six out of 10 adults with household incomes over $100,000 said they had used a coupon in the past six months. Four out of 10 of them said they got that coupon online -- a rate nearly twice that of people who made $35,000 or less.”
CNN, 25 June 2010

Marketing Heroin on the Mean Streets
This is not the sort of topic we normally cover, but I was struck by this item covering an ‘art show’ of sorts – the art being the ‘stamps’ (or logos) that New York drug dealers put on the packages in which they sell their products. The sociologist who collected the packets said, "This was the marketing of heroin. Even something so forbidden, so demonized, can be branded." Fascinating. And scary.
The Times of India, 26 June 2010

Kids Prefer the Taste of Food Marketed with Cartoon Characters
From our file on Research into the Obvious, Yale University has found that kids like stuff with cartoon characters on it. Anyone who has ever steered a shopping cart holding a two-year-old down the cereal aisle could have saved Yale some time. I shouldn’t be all that snarky, though, because it was interesting that the research also found that kids thought carrots tasted better if they come in a package with Shrek on it.
NPR, 21 June 2010

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