Walmart is streamlining its U.S. brick-and-mortar operations, reducing its number of business divisions, each headed by a senior vice president, from six to four, a person familiar with the overhaul told Bloomberg.
Its geographic regions will also be cut to 36 from 44, Bloomberg reports. The big-box retailer expects to finish the restructuring by October, a source familiar with the matter told Reuters. Walmart did not respond to Retail Dive’s request for comment.
Spokesperson Kory Lundberg told Bloomberg that a revamp is happening, but did not confirm details. “Our last field restructure was several years ago and our business has changed over that time,” Lundberg said in a statement. “The structure we are putting in place will help improve communication and execution, streamline decision-making and help us accelerate our pace of change.”
Investors smiled warmly on the news that Walmart would be downscaling its operations — sending shares up the most in a week, Bloomberg noted.
Simplifying its organization will allow the retail giant to cut time and costs from the decision-making process at a time when retail is undergoing historic change, Judge Graham, CMO of marketing agency Ansira, told Retail Dive in an email. “Walmart’s competitors, like Amazon, have simplified organizational structures, and Walmart is trying to follow their lead,” he said. “In the era of instant gratification and high consumer expectations (heavily due to ‘The Amazon Effect,’) this change is necessary for survival in the ever-shrinking retail space.”
But it’s unlikely Walmart is really responding to Amazon with this move, other analysts told Retail Dive, suggesting the motives may be found closer to Wall Street in New York than in Seattle. For one thing, according to Nick Egelanian, president of retail development consultants SiteWorks International, it’s routine for a company as mature as Walmart to seek earnings growth and organizational efficiency during slow-growth periods. Egelanian said he doesn't believe Amazon is making a dent in Walmart’s growth, nor that the e-commerce giant is a paragon of efficiency.
“They are opposite ends of the market, and Walmart competitors like Dollar General, Aldi and Lidl are opening literally thousands of stores, with Dollar General alone opening 1,000 this year alone,” Egelanian said in an email to Retail Dive. “Amazon operated somewhere in the range of 75 to 100 million square feet of warehouse space and just announced that it will open a second HQ that will alone house 50,000 new employees. It makes little or no profit in its retail operations, and is anything but efficient as a retailer in that part of its business. Innovative and logistically amazing — absolutely. Efficient and profitable — no.”
In fact, it’s likely those brick-and-mortar rivals have more to do with Walmart’s move in that they are fanning the flames of a price war in food retail that Walmart can’t avoid. Research from various analysts in recent months has found that Walmart is responding with aggressive pricing in areas where Aldi and Lidl — two low-cost, all-private label German grocery stores in expansion mode — are operating.
“Kroger announced price cuts, its stock got destroyed. Target announced price cuts, its stock got destroyed,” Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive, noting that Dollar General is also reporting increasing sales from food. “Now Amazon is slashing prices at Whole Foods and is putting up a lot of that merchandise up on their site. There’s Aldi, Lidl, everything. Everybody recognizes prices have to come down. Walmart goes to school on all this — and knows that if you don’t want your stock to be destroyed, you better cut costs. It’s pretty basic.”
This may be a nightmarish deja vu for Walmart, which in the U.K. has seen its Asda grocery unit decimated by a years-long price war sparked by the same German grocers that are now expanding in the U.S. While investors rewarded the move Tuesday, Davidowitz isn’t so sure it’s a wise business decision.
“This is a very complex situation. They say it’s going to be more efficient, more centralized, but in the end will they be close to the consumer? Will they have enough management?” Davidowitz said. ”When you’re managing a structure the size of Walmart — and they’re dealing with more change than I’ve ever seen in the retail business — it would seem to me that you need more management, you need more managers closer to the action. There’s nothing wrong with cutting costs, but a company of this size with less regions — I don’t think that all makes sense.”
Notably, neither Target nor Kroger announced cost cutting and management restructuring ahead of or along with their price cut announcements. Davidowitz warned that while Wall Street will reward a company for one move, punishments can come swiftly too.
“Wall Street will stop signing up when there’s a quarter where suddenly there’ll be no comp sales, or margins are down,” he said. "For 10 years straight Kroger had better comp sales than Walmart, and they did it without any cost cutting. But Walmart is under tremendous pressure because they’re a price leader. Target isn’t, they have cachet. But Walmart has to be a price leader. Walmart has to cut prices, they have to."