Walmart to the Rescue

Walmart to the Rescue

Constance Hays tried to write a balanced article. On the topic of Walmart data collection, her research was sound and informative. On her depiction of Walmart’s market power, her reasoning was sound. On privacy and the potential for abuse, she is largely borrowing hearsay and vague insinuations that have been leveled at Walmart for years. In her article, at no point does she provide any evidence that 1) Walmart has abused its data, 2) Walmart could abuse its data, or that 3) Walmart has any motive for abusing its data. In laying out a string of unsubstantiated doubts to fan fears, we see her channeling Glenn Beck in a way that, “…some privacy advocates worry about the potential for abuse.” Take that Constance!

Observations about Walmart from the Article:

1. Just because Walmart collects more data than the others, does not mean that it is collecting a disproportionate amount relative to the others. Divide the data by the number of customers they serve and how often they visit the store and we may find that it is Target or other firms that collect more data about you. Target has the loyalty program that collects user identifiable transaction data. Since Walmart does not do this program, they simply cannot put a name with the shopping data. Constance speculates that Walmart could figure out a way to add this information to its records. But she offers no rationale for *why* they would do this.
2. Just because Walmart collects the data, does not mean they can extract uniquely valuable insights from it. Figuring out that certain SKUs sell well before and after a hurricane is very simplistic insights into their customers behaviors. And it requires no invasion of privacy to accomplish – in fact, this could have been done before computers existed.
3. Just because you can prove that certain power could be abused does not prove that that power will be abused. While it may be possible for Walmart to do something bad with its data, it does not mean that they have an incentive to abuse it. What advantage does Walmart get by knowing the value of my house? This information is publicly available. Why is it any more dangerous for Walmart to know personal information than it is for my neighbors to google me? It is not.
4. Walmart has a consistent Rollback policy. There is no evidence that when Walmart is seeking to increase their margins. If data mining is not used to increase gross margins, then it would appear that it is impossible for the firm to use their power for dastardly purposes. Thanks.

Walmart’s Success at using its data to create an Experience:
It appears that Walmart is not very successful at using its data. If the best case study Walmart has on using its data is the Hurricane example, then this does not bode well. Analyzing SKU sales data for stores near Hurricanes could have been done in the 1960s. Speed might have been an issue, but stores in 1960 should be able to say what products sold well on what week. This indicates that Walmart may have limited talent or manpower working to harvest the data they collect. It also may imply that the architecture of the database could inhibit investigation. However, Walmart does not talk about its data harvesting activities, so we may not have an accurate picture of internal success stories. Given this reporter’s negative Walmart attitude, I am not surprised she didn’t gain access to higher level examples.

Trusting Walmart with Personally Identifiable Data
This question was a trap. Several implied assumptions were within the question itself. First, it is unclear whether Walmart has personally identifiable data. Yes, they have credit card transactions, social security numbers, and driver’s licenses. But many other firms have that information. The question is whether they have a disproportionate number of these. Corner check cashing services require the same information, charge higher prices, and are run by people who exploit the poor. Comparatively, Walmart has more controls in place, software to prevent data theft and so forth. Large companies do not perform “identify theft” – individuals do. By storing people’s social security numbers, they reduce the chance that people watching could steal the number. Clerks at stores and many retailers have been caught doing this. Reducing the people-centric risk is of higher concern.
The issue of trust is another false dilemma. I do not need to trust Walmart. So whether I trust them or not is not really an important issue. Walmart simply does not have much incentive to use my information to cheat me. They have rollbacks and their gross margins have been steady around 20% for a decade. Even Constance can not think of something dastardly for Walmart to do with this data even if they could put my name next to my shopping order.

Impact on Suppliers
We are moving from a world where the manufacturers had all the power to one where the retailer has all the power. I trust a retailer who has a fairly locked Gross Margin over manufacturers like P&G who perfected the “razor blade model” for extracting profits. These manufacturers have been doing all kinds of shady practices over the years, like cutting portion sizes and pushing high caloric foods/drinks for years. I have huge distrust for manufacturers. But I can trust a firm with Rollbacks who do not mess with coupons and promotions very much. This concentration of power has increase the standard of living for many people and I am very glad that Walmart has been pushing their suppliers hard. One of the big things about this is their ability to force change. Walmart has asked for things like reduced packaging weight/cost on to improve margins and reduce environmental impact. Without a push from Walmart, these firms may never have taken these action independently.
However, I am somewhat concerned that the private label business they have might go too far and stifle future innovation. It is difficult at this point to see where the logical conclusion of the war between premium brands and private labels will go. Some pressure on manufacturers may be a good thing. Too much and brands could exit the category. We cannot rely on the private labels to invest in new products ideas, at least not yet.