DENVER — Ask even the biggest players in the financial services industry which nonbank competitor they fear most, and the answer frequently is Wal-Mart.
The retailing giant's former CEO, Lee Scott, addressed BAI's Retail Delivery conference here and while offering few insights into what plans Wal-Mart may have for continued expansion into financial services, he did offer views on the big data it monitors, how it works to avoid becoming obsolete, and how online fits into its strategies.
In the process, he also shared his own aggravations with Bank of America. Here's a look at some of Scott's responses to questions posed to him by a moderator:
Q: Can you keep up with the customer? What is the fulcrum now where it seems you need infinitely more knowledge about your customers?
Scott: At Wal-Mart, where we predominantly own a big wallet share in certain economic stratas, it's not until you get to the middle and upper middle stratas that we begin to lose some share. It's an interesting issue in that Wal-Mart doesn't need to know a lot about individual customers at the store level.
What they need to know is what is happening to the customers in general at a store level.
Here's an example: As fuel prices go up, the underbanked and unbanked spend more of their money on energy. Say they need to clean their house because their mother-in-law is visiting. They can go to Dollar General and buy cleaning materials for a $1. They don't really care what it costs per ounce; they only have $20.
If you're Wal-Mart you have to understand what is happening in that customer's life. Even though you are lowest price on a per-ounce basis it's irrelevant to them because they don't have the money to buy the larger size. As you move up the scale you have to be relevant to customers. Upper-income customers are not price-point customers. They are looking for midlevel and upper level in brand. It's when you get online that you better understand the individual customer; the customer who is 65 doesn't want to immediately see your price on diapers and binkies. It's what Amazon is so good at.
Q: How do you avoid becoming obsolete or replaced by an Amazon?
Scott: If you look at the financials of Amazon, they can spend capital with no return. But Wal-Mart has allocated a lot of capital to distribution centers and the use of stores, which is an advantage over Amazon. The most difficult thing dealing with Amazon is Amazon is like Kleenex; it's become so ubiquitous, and use of its name just encourages people. Wal-Mart is not going to be irrelevant, because cost matters. Consumables still work best with stores. We make a 7% margin on Tide. Don't tell me you can sell Tide for the same price as Wal-Mart and deliver it to the person's home. It doesn't work.
Price matters. This group [of financial executives] is a different world than Wal-Mart. But I heard someone say once that if you have change in your pocket you have more money than half the people in the world. So it's not like Wal-Mart is going to go out of business because of online retailing. The real issue is will Wal-Mart optimize its opportunities online.
Q: What about your own financial institution relationships?
Scott: I have a couple of bank accounts one of which is with Bank of America. I have one person who works for me, and B of A does my payroll for $39 a month. They pay all the taxes, they do everything for me.
I will not be leaving Bank of America. Every time I go to an ATM they go through this whole litany of asking me questions, would you like to talk to us about this? Would you like to know more about that. The first time I didn't mind it, but after 10 times I do. It's annoying enough that were it not for the fact they do so much, I would leave. This isn't customer service. I think we get confused over what is customer service and what is it we're trying to push on people. When you give out your e-mail you are going to be sent a lot of stuff that isn't relevant. When it's not meaningful to people they not only will tune you out, they will look elsewhere for something that is relevant.
