Wal-Mart in Decline; changes in the rules of executive compensation

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Falling_man 
Wal-Mart is a company in decline.  What I find particularly ominous, and a clear sign of what in a civilization would be called decadence, is a New York Times report that Wal-Mart will no longer base senior executive compensation on same store sales (how a store that has been in existence for at one year did compared to the previous year).  Rather they will be basing it on total chain sales. 

That means that as long as Wal-Mart keeps adding new stores top management will make bonuses.  Good for Wal-Mart senior executives; not so good for shareholders and lower level employees. 

Obviously, the best measure of competence is the same store sales measure.  It shows how the company is doing in creating an ever improving sales environment, creating product mixes that draw shoppers and in general maintaining its brand image with the consumer.

To my mind, Wal-Mart’s board is now rigging the game so its top management will get big payouts.  They are, in essence, accepting that they can no longer, at least in the near term, drive higher same store sales.

When an organization becomes unmoored from its most foundational principals (and principals of good business for that matter) that company is in decline.  No, Wal-Mart is not going to turn belly up any time soon.  I do believe, however, that this decision will mark an historic turning point as Wal-Mart goes from being a super merchant to just another retailer. 

4 thoughts

  1. Richard, I remember going to Bentonville for the first time in the 90s to visit Walmart. We toured the Ben Franklin museum with Sam Walton’s office and saw his red pick up truck. We mused at the stories of him waiting online at the cashier and showing up at the loading dock to ride shot gun with his drivers that day. Arriving at the main lobby with folding chairs for guests and Linoleum flooring I remember walking up to a reception desk that looked marginally better than formica on a wooden crate. We took a number for a “phone” booth where we set up our presentation taking care no more than two of us were in the booth with the buyer lest we generate too much body heat in there. I also remember visiting Kmart in Toy Michigan and marveled at the stark contrast of the marbled lobby and gleaming chrome pillars. Walmart was $160 Billion then and growing by double digits while Kmart was $30 Billion and losing by double digits annually. Your assessment is spot on. Once you lose yor identity, that’s the beginning of the end.

  2. Between this post and an earlier one covering Wal-Mart’s re-rebranding, it strikes me how inefficient the retailer is. This bonus system and the redesign are poorly designed uses of money. For me, a classic Target-style shopper (urban, disposable income, some minor sense of snob appeal), what turned me away from Wal-Mart wasn’t its warehouse aesthetic, but its poorly designed parking lots. If I spend 10 minutes unable back out of my space due to traffic while terrified I might collide with a speeding car or hit a kid I can’t see because I’m surrounded by SUVs, I don’t care about pricing or pallets.
    If Wal-Mart is a machine, then be a good, streamline machIne. Then you will get my business.

  3. Richard,
    As usual, you make some very prescient observations. In most institutions with a strong founder’s vision, that vision lasts about 20 years after the founder dies. Sam Walton died 20 years ago, looks like everyone who worked with him is pretty much out of the organization. Coincidence?

  4. Not that one should ever hope for a company to fail, but after the rampaging destruction that Wal-Mart waged on the American retail scene, in a guise that Sam Walton would not recognize, it has to be excused if one smiles – just a bit – reading this sort of analysis.

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