Walmartization

Once upon a time it was called DIY. That stood for 'do it yourself,' and it was a folksy acknowledgement that some people, even techie/artsy urban dwellers, either preferred to demonstrate their personal facility with craftsmanship - or simply needed to save a few bucks or euros by putting stuff together themselves rather than buying it pre-built.

But it has begun to take on a new meaning. Doing it yourself signals the end of the service economy as we knew it. To preserve margins, competitive advantage and executive compensation formulae, businesses are increasingly asking customers to do everything themselves. Self check-out at supermarkets and stores, self-diagnosis of computer or software problems (though no one has yet explained how one is supposed to diagnose and then fix one's tech problems when the hardware or software in question isn't functioning properly. But I digress...), making travel reservations - and then adjusting them for a fee that may exceed the price of the original ticket, etc. The list does go on.

This trend is increasingly referred to as 'Walmartization' in honor of the company that has so emphatically eschewed service in favor of somewhat lower prices for customers and somewhat higher margins for itself.

But the question being raised by observers is whether there is a useful limit to such cost-cutting. Whether, in fact, Walmart's problems may have as much to do with the decline in or total absence of service as they do with stagnating household incomes in the markets it ostensibly serves. Return on Investment (ROI) became enshrined in the 90s by 'serious' executives as the one true measure of their performance. Until it became apparent that the best way to goose ROI was to cut the denominator, which usually meant pesky expenses like people and the tasks they perform for equally pesky customers who were always demanding service. One of Walmart's enduring innovations was to convince customers that they didnt need service - or the employees who delivered it. But then it turned out that some customers really do need or want assistance - and are willing not just to pay for it, but to drive or walk a little further to find it.

There just may be a point of diminishing returns for such relentless devolution of tasking to the customer. And we may be witnessing it. JL

Yves Smith comments in Naked Capitalism:

The pursuit of efficiency doesn’t always produce net gains, as economic theory might tell us.

It’s become fashionable to discuss the creeping decay in advanced economies, particularly the US, both in term of third worldification and end of empire. The more apocalyptic turn to theories of collapse from writers like Jared Diamond and Jacques Tainter.

The measure of productivity, more stuff per unit input, misses how service/product quality can deteriorate. Some of this is deliberate: I have readers in comments regularly lament how old durable goods and tools were more reliable and lasted longer than contemporary versions. But there are other aspects of the downside of the willy-nilly pursuit of efficiency that have become so routine we accept these indignities and often don’t recognize them (unlike other ones that remain annoying years after the change, such as the widespread implementation of call routing and prompts in place of humans answering phones).

The most stunning recent example has proven to be Walmart. The company that McKinsey tagged as the biggest contributor to productivity gains in the 1990s (through both its own efforts and that of copy cats) has become a one-trick pony. It appears that its answer to every competitive challenge is to cut costs further. It has gone way beyond the point of maximum advantage as a result. It is losing customers to Costco and Target because it has cut staffing so far that even bargain hunting customers find checkout lines to be intolerably long; they’d rather pay a smidge more to be spared the nuisance. And even worse, they can’t even keep shelves stocked, and other customers leave in frustration. From Bloomberg:

Margaret Hancock has long considered the local Wal-Mart Stores Inc. (WMT) superstore her one- stop shopping destination. No longer.
During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics.
The cosmetics section “looked like someone raided it,” said Hancock, 63…
“If it’s not on the shelf, I can’t buy it,” she said. “You hate to see a company self-destruct, but there are other places to go.”
It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world’s largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company’s website. In the same period, its total U.S. workforce, which includes Sam’s Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.

And also last week, Lambert sighted a simply deranged Walmart cost saving scheme:

And not the parasitic business model, or the sexist supervisors, or union busting and beating the workers down to the ground, or the depressing stores, the empty shelves, or the shoddy goods. No, management’s gone completely round the twist:

Wal-Mart Stores Inc is considering a radical plan to have store customers deliver packages to online buyers, a new twist on speedier delivery services that the company hopes will enable it to better compete with Amazon.com Inc.
Wal-Mart is making a big push to ship online orders directly from stores, hoping to cut transportation costs and gain an edge over Amazon and other online retailers, which have no physical store locations. Wal-Mart does this at 25 stores currently, but plans to double that to 50 this year and could expand the program to hundreds of stores in the future.
“This is at the brain-storming stage, but it’s possible in a year or two,” said Jeff McAllister, senior vice president of Walmart U.S. innovations.
“I see a path to where this is crowd-sourced,” Joel Anderson, chief executive of Walmart.com in the United States, said in a recent interview with Reuters.

Can anybody who isn’t a CEO and doesn’t live in a gated community or a penthouse suite see the problem here?
So, I order next month’s case of frank ‘n’ beans online from Walmart, and the next day some meth freak in a pickup — to carry the beans! — shows up at my door, to case the house for copper piping? No thanks.

Now it may just be a bad side effect of the spring equinox, but I’ve also seen a marked decay in the performance of some of the itty bitty number of service providers I use, an ugly combination of screwups plus ‘tude rather than abject apologies and corrections (One of the rules of perception of the quality of service, at least per some McKinsey work years ago that likely still holds true, is that the perception of service quality is not a function of how many mistakes take place, but how the vendor handles mistakes). And although there are (thank God) some exceptions, I can find other examples without thinking too hard. For instance, the high end cleaner I use for my fancy duds (on those rare occasions when I need to go shopping in my closet) isn’t at all what it used to be. And what is the deal with restaurants? I don’t eat on the high side even remotely as often as I used to, but I get taken out a few times a year to Serious Foodie places, and I have to say I had more thrilling meals at the top spots in the 1980s, and a lot of places in the non-expense account tier that were memorable. And this in our era of heirloom tomatoes, day boat lobster, and all things organic.
You tell me. Have I just had a run of bad luck or do you think services are not what they used to be?