Wal-Mart Plans to Reinvent its Business to stay Afloat

The retail giant, Wal-Mart Stores, seems to have reached the limits of the big box model that Sam Walton practically invented back in the 1960s. On Wednesday, shares of the company fell the most since 1988 after a drop in the next year’s projected profits.

Competition from companies such as Amazon.com and an increasing number of smaller retailers have put pressure on the super center model that has made it the largest retail store chain in the world.

Doug McMillon, the CEO of Wal-Mart, is sending a clear signal to Wall Street that the company has to make massive investments to reinvent itself if its wants to thrive in the current situation. This has become even more important for the retail giant in the face of increased pressure from other retail companies.

Wal-Mart, it seems, is taking a page right out of Jeff Bezos playbook in that it is sacrificing short term gains in a bid to improve its long term profitability position. The retail giant has made plans to increase its investment in online services and scale back on retail super stores. It wants to focus on smaller format locations coined as “neighborhood markets”.

The company plans to spend about $1.5 billion in 2016 for better training and increased wages for its workers. The aim of this massive investment next year is to improve the customer service quality in its more than 4,000 stores in the US. This seems to be a gamble for Wal-Mart, but the company says that its strategy is already paying off.

McMillon stated that Wal-Mart is now over half a century old, and that retail has changed during that period. The company needs to change its operational game if it wants to retain its market share and profit position. However, the change may take several years to come, and it won’t be cheap.

Wal-Mart is surrounded by competitors that are eating up both its market share and revenue. Companies such as Target, J.C. Penny, Best Buy , and Amazon – the king of online commerce – are putting pressure on the company’s financial position.

The company is facing pressure on the economic front as well. Disposable income of most Americans is either decreasing or has been stagnant for some years. Shoppers are spending less of their money on retail goods and instead spending on health care, cell phone and cable services, or new cars.

Instead of continuing to focus on increasing revenue and profit of the company, McMillon is now focusing on enhancing Wal-Mart’s online offerings. The retail giant is investing in a service that would allow individuals to make online orders and then head to the store to pick them up. The company is also expanding its distribution centers to speed up shipping times for online orders.

“It’s more important now than ever that we evaluate our portfolio,” McMillon said. “We won’t let the breadth of our business distract us from our most important priorities.”