How Wal-Mart Lost Its Technology Edge

Two decades ago, the world's number-one retailer used IT to reinvent global supply chains. The world caught up and now Web 2.0 technologies are forcing retailers to pay more attention to customers. No longer a leader, Wal-Mart's IT is at a crossroads.

By Thomas Wailgum
Thu, October 04, 2007

CIO — Sam Walton didn't care much for technology. The legendary patriarch of Wal-Mart Stores was well-known for his lack of excitement about "computers," as he called the company's IT systems. "Truthfully, I never viewed computers as anything more than necessary overhead," he wrote in his 1992 memoir, Made in America. "A computer is not—and will never be—a substitute for getting out in your stores and learning what's going on."

If Walton were alive today (he died the year his book was published), he might be saying, I told you so.

Many still consider Wal-Mart's pioneering, IT-driven supply chain to be the world's most efficient, and the company's technology standards still command respectful attention from its thousands of suppliers. But the $349 billion retailer is stumbling, and IT has played a role in its woes.

Last year, the Bentonville, Ark.-based behemoth sold its stores in South Korea and Germany (incurring a $1 billion loss in Germany alone), reportedly due to its inability to adapt to the local cultures and unseat established players. At home, Wal-Mart twice reduced the number of new U.S. supercenters it planned to open this year—the second time, in June, by 30 percent. In August, the company reported that it had missed second-quarter profit estimates and warned that its profits would be lower than expected for 2007.

Wal-Mart executives blamed this slump on the effect of high energy prices on its low-income core shoppers, as well as the company's failure to move to new high-end apparel and home-decor merchandise. Analysts blame Wal-Mart's inattention to customer service at home, merchandising mistakes and its insensitivity to local markets abroad. Meanwhile, Wal-Mart has struggled online. Its website lags behind competitors like Amazon.com and Target, and recent marketing experiments using social networking technologies have achieved mixed success. The company has even suffered in its sweet spot, with serious setbacks to its deployment of radio-frequency identification (RFID) tags throughout its supply chain. (Wal-Mart declined repeated requests for interviews with CIO Rollin Ford and others.)

The company's performance, said President and CEO Lee Scott in a press release, "is not what we expect of ourselves, and not what our shareholders expect of us." He said management would spend the rest of this year "focused on inventory improvements, delivering quality products at low prices, and store execution at the highest standards."

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