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Did IT Help Wal-Mart's Quarterly Financial Results?

The retail giant turned a nice profit amid retail doom-and-gloom, and IT certainly played a key role. But just how much of the success is directly attributable to IT's efforts and Wal-Mart's newly installed retail applications is harder to figure.

By Thomas Wailgum

February 20, 2008 — CIO —

Wal-Mart released its fourth-quarter sales and earnings this week, and the relative good news was cause for a minor celebration amid gloomy U.S. economic conditions. Profits for the Bentonville, Ark.-based retailer were up 4 percent when compared to last year's, and it notched $100 billion in sales for the quarter. Same-store U.S-based sales, an important retail metric, were up a modest 1.7 percent, which was considered acceptable by analysts, given the climate.

Financial experts are predicting an economic downturn, the likes of which have not been seen since the 1991 recession. But retail analysts say Wal-Mart, with its renewed emphasis on low prices, may be positioned to weather the storm. "Other merchants have closed stores, laid off thousands of employees, scaled back store expansions or pared inventories as consumer spending screeches to a halt," reported The New York Times. One retail analyst graded Wal-Mart's end-of-year financial performance as a "B" while the rest of the industry got a "C-minus."

A recent article on the last holiday shopping season noted that Wal-Mart's chief competitors were less than merry about their results: Same-store sales at Sears fell 2.8 percent in December 2007, Kmart's same-store sales dropped 4.2 percent, and Target's declined 5 percent. Wal-Mart's, however, rose 2.7 percent in December.

In delivering the fourth-quarter financial results on Feb. 19, Wal-Mart President and CEO Lee Scott attributed Wal-Mart's recent successes to "pricing strategies" and "improved customer service," citing cleaner stores, fewer out-of-stock products and faster checkout lanes. Scott was upbeat about the results but cautious about the future, stating, "We know that the economy remains a critical factor in this new fiscal year."

What's IT Got to Do with It?

In October 2007, CIO published an article that examined how Wal-Mart's internal IT department had contributed to the retailer's fiscal problems, which began with stagnant sales in 2005 and ran into 2006 and 2007.

The ISD group, as it's known internally, had distracted itself with a cutting-edge radio frequency identification (RFID) program that frustrated its suppliers, the article reported. In addition, the ISD group had yet to adjust to the realities of the new Web 2.0 world and consequently its online sales lagged rivals' efforts, and IT leaders relied too much on homegrown IT systems and shunned retail software it deemed not scaleable enough.

On top of it all, both Wal-Mart corporate and ISD were stuck in a command-and-control mindset that centralized all decision-making and took away the power and flexibility of local managers.

 

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