What Wal-Mart Knows About Customers' Habits
By CONSTANCE L. HAYS
Published: November 14, 2004
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HURRICANE FRANCES was on its way, barreling across the Caribbean,
threatening a direct hit on Florida's Atlantic coast. Residents made for
higher ground, but far away, in Bentonville, Ark., executives at
Wal-Mart Stores decided that the situation offered a great opportunity
for one of their newest data-driven weapons, something that the company
calls predictive technology.
A week ahead of the storm's landfall, Linda M. Dillman, Wal-Mart's chief
information officer, pressed her staff to come up with forecasts based
on what had happened when Hurricane Charley struck several weeks
earlier. Backed by the trillions of bytes' worth of shopper history that
is stored in Wal-Mart's computer network, she felt that the company
could "start predicting what's going to happen, instead of waiting for
it to happen," as she put it.
The experts mined the data and found that the stores would indeed need
certain products - and not just the usual flashlights. "We didn't know
in the past that strawberry Pop-Tarts increase in sales, like seven
times their normal sales rate, ahead of a hurricane," Ms. Dillman said
in a recent interview. "And the pre-hurricane top-selling item was
Thanks to those insights, trucks filled with toaster pastries and
six-packs were soon speeding down Interstate 95 toward Wal-Marts in the
path of Frances. Most of the products that were stocked for the storm
sold quickly, the company said.
Such knowledge, Wal-Mart has learned, is not only power. It is profit,
Plenty of retailers collect data about their stores and their shoppers,
and many use the information to try to improve sales. Target Stores, for
example, introduced a branded Visa card in 2001 and has used it, along
with an arsenal of gadgetry, to gather data ever since. But Wal-Mart
amasses more data about the products it sells and its shoppers' buying
habits than anyone else, so much so that some privacy advocates worry
about potential for abuse.
With 3,600 stores in the United States and roughly 100 million customers
walking through the doors each week, Wal-Mart has access to information
about a broad slice of America - from individual Social Security and
driver's license numbers to geographic proclivities for Mallomars, or
lipsticks, or jugs of antifreeze. The data are gathered item by item at
the checkout aisle, then recorded, mapped and updated by store, by
state, by region.
By its own count, Wal-Mart has 460 terabytes of data stored on Teradata
mainframes, made by NCR, at its Bentonville headquarters. To put that in
perspective, the Internet has less than half as much data, according to
Information about products, and often about customers, is most often
obtained at checkout scanners. Wireless hand-held units, operated by
clerks and managers, gather more inventory data. In most cases, such
detail is stored for indefinite lengths of time. Sometimes it is divided
into categories or mapped across computer models, and it is increasingly
being used to answer discount retailing's rabbinical questions, like how
many cashiers are needed during certain hours at a particular store.
All of the data are precious to Wal-Mart. The information forms the
basis of the sales meetings the company holds every Saturday, and it is
shot across desktops throughout its headquarters and into the places
where it does business around the world. Wal-Mart shares some
information with its suppliers - a company like Kraft, for example, can
tap into a private extranet, called Retail Link, to see how well its
products are selling. But for the most part, Wal-Mart hoards its
It also takes pains to keep the information secret. Some of the systems
it uses are custom-built and designed by its own employees, the better
to keep competitors off the trail. Companies that sell equipment and
software to Wal-Mart are bound by nondisclosure agreements. Three years
ago, Wal-Mart summarily announced that it would no longer share its
sales data with outside companies, like Information Resources Inc. and
ACNielsen, which had paid Wal-Mart for the information and then sold it
to other retailers.
"When you look at their behavior, you can tell that Wal-Mart considers
data to be a top priority," said Christine Overby, a senior analyst for
consumer markets at Forrester Research. Over the years, she said,
Wal-Mart executives have spent handsomely for their systems, paying $4
billion in 1991 to create Retail Link and signing onto innovations like
bar codes and electronic data interchange, a forerunner of the Internet,
well ahead of the pack. Wal-Mart is also driving manufacturers to invest
in radio frequency identification. By next October, the company will
require its biggest suppliers to tag shipments to some of its
distribution centers with tiny transmitters that would eventually let
Wal-Mart track every item that it sells.
With so much data at Wal-Mart's corporate fingertips, what are the risks
to consumers? Most have no clue that their habits are monitored to such
an extent. There are no signs - like the ones for Wal-Mart's
anti-shoplifting cameras - advising customers that information is being
collected and stored. And there is no giveback: Wal-Mart doesn't use
loyalty cards and rarely offers promotions based on past purchases.
It is aware, however, that shoppers are concerned about privacy. On its
reasonable steps to protect your personal information. We maintain
reasonable physical, technical and procedural measures to limit access
to personal information to authorized individuals with appropriate
NOT everyone agrees. "People don't know that Wal-Mart is capturing
information about who they are and what they bought, but they are also
capable of capturing a huge amount of outside information about them
that has nothing to do with their grocery purchases," said Katherine
Albright, the founder and director of Caspian, a consumer advocacy group
concerned with privacy issues. "They can find out your mortgage amounts,
your court dates, your driving record, your creditworthiness."
One source of information can be a credit card or a debit card, Ms.
Albright said. Wal-Mart shoppers increasingly use the cards to pay for
purchases, particularly in the better-heeled neighborhoods where the
company has been building stores recently.
Some companies specialize in what is known as data enhancement, in which
a customer's name and address, or a telephone number, can open the door
to additional information. "If Wal-Mart had a customer database and
wanted to start e-mailing their customers, we could append their e-mail
addresses," said Sarah Stansberry, director of marketing for AccuData
America, a company based in Fort Myers, Fla., that specializes in such
services but does not use credit card records. With e-mail addresses,
AccuData can track names and home addresses, she added. Other
information follows: "We can access what they paid for their house, and
their mortgage," though not driving records. The company has not done
any work for Wal-Mart, she said.
Ms. Dillman said that she did not think Wal-Mart had ever tried to
squeeze data from credit cards to learn more about customers' buying
habits. Indeed, she said, it wouldn't be necessary. "We can do that
without the credit card information," she said. "We can look at what's
happening in the market, and look at what's happening in other markets
that are similar."
WAL-MART uses its mountain of data to push for greater efficiency at all
levels of its operations, from the front of the store, where products
are stocked based on expected demand, to the back, where details about a
manufacturer's punctuality, for example, are recorded for future use.
The purpose is to protect Wal-Mart from a retailer's twin nightmares:
too much inventory, or not enough.
"They recognize that technology is a critical tool for them to have an
efficient supply chain," said Kathryn Cullen, a principal at Kurt Salmon
Associates, a consulting firm, who said that she has not advised
Wal-Mart. "They track the purchases and very quickly route that back to
their suppliers so they can be replenished. They are very strict with
their suppliers, but they give them the data that they need."
Armed with sales results from past weeks and months, Wal-Mart meets with
each of its suppliers to establish sales goals for the coming year.
Suppliers are actively encouraged, so to speak, not to miss those goals.
A manufacturer that fails to meet its sales target - or has
data-documented problems with orders, delivery, restocking or returns -
can expect even tougher negotiations in the future from Wal-Mart, which
is renowned for its steeliness in such situations.
Still, achieving sleeker operations is not the whole story. In many
ways, data are used to forecast and drive Wal-Mart's business. "We use
it in real estate decisions, understanding what the draw is like and
what the customers will be like," Ms. Dillman said, referring to the
company's planning for new stores, including the number of shoppers it
expects to attract to each.
When it comes to Sam's Club, Wal-Mart's membership warehouse chain, "we
know who every customer is," she added. So Wal-Mart does a kind of
outreach, contacting nearby convenience store owners, for example, to
let them know that "the items they buy, they could save money on by
buying at Sam's."
AT Wal-Mart, problems are referred to as "exceptions," and technology is
essential for what Ms. Dillman calls "exception management." Within the
company's empire, "we keep watching everything that just happened," she
said. "We are pretty near real time. We can tell people that they need
to go do something, and we are within hours, depending on the event."
The "event" may be a truck's failure to drop off or pick up something,
or the delivery of a load of shoes missing their mates. It could be the
absence of an important product in a store's backroom, or in the
distribution center that serves that store. Or it could be an act of
nature like the hurricanes that descended, one after another, on Florida
and other parts of the Southeast this year.
Eventually, some experts say, Wal-Mart will use its technology to
institute what is called scan-based trading, in which manufacturers own
each product until it is sold.
"Wal-Mart will never take those products onto its books," said Bruce
Hudson, a retail analyst at the Meta Group, an information technology
consulting firm in Stamford, Conn. "If you think of the impact of
shedding $50 billion of inventory, that is huge."
The impact will probably be felt by suppliers, he added, but none are
likely to complain.
"You can see the pattern of Wal-Mart's mandates, and as Wal-Mart grows
in power, it is getting more dictatorial," he said. "The suppliers shake
their heads and say, 'I don't want to go this way, but they are so big.'
Wal-Mart lives in a world of supply and command, instead of a world of
supply and demand."
Consumers willingly turn over plenty of information. For example,
cashing a payroll check at Wal-Mart requires a two-step process, said an
assistant manager in a Wal-Mart in Saddle Brook, N.J., who asked to be
identified only by her first name, Mary. "First you enter your Social
Security number into the system, twice," she said, pointing to the
number pad hooked up to a register in the checkout lane. "The cashier
can enter it, but some people don't like to share that information."
Next a customer must enter his or her driver's license number, the
assistant manager said. If payroll checks are cashed regularly at
Wal-Mart, there is no need to keep punching in the Social Security
number, only the driver's license number: "The system will recognize you
the next time."
All of that information winds up at the company's office in Bentonville,
the assistant manager added.
Ms. Dillman said it was "separated out, along with any personal
identifiable information," and warehoused in a way that requires special
permission to gain access. For check approval - when a customer writes a
personal check to pay for something at a Wal-Mart, for example - "we
don't keep it any longer than we need it for that transaction," she
said. "All it's linked to is the checking account number, when we scan
your check," she added. "We don't mine that data. We don't use it for
anything other than the transaction."
Historically, Wal-Mart's focus has been on the products it sells, not to
whom it sells them. One of the most difficult pieces of information to
harvest is which customer bought what. Such information is expensive,
"When you are in the everyday-low-price market, you tend not to gather a
lot of information about customers directly because you don't spend a
lot of time with them gathering name, address, telephone numbers through
a loyalty card," said Gene Alvarez, a vice president at the Meta Group.
"That is the proper focus, because when you want to get
customer-intimate, you have to offer a loyalty program, and there's the
cost of that loyalty program."
Wal-Mart has discovered the potential of its own Web site in learning
more about customers. Ms. Dillman said the site was beginning to allow
users to buy a product online and have it delivered to a store near
them, an option that Sears, Roebuck and other retailers have had for
years. Naturally, some personal information would have to be submitted
as part of the transaction. "You can do some association there, what
products are of what interest," Mr. Alvarez said.
But Wal-Mart executives tend to care more about how products sell as
part of a larger basket. "Me knowing what you specifically buy is not
necessarily going to help me get the right merchandise into the store,"
Ms. Dillman said. "Knowing collectively what goes into one shopping cart
together tells us a lot more."
Analyzing what ends up together in that cart drives Wal-Mart's pricing,
other experts said. Shoppers might buy cold medicine along with chicken
soup and orange juice during flu season, but not all of those products
need to be priced at rock-bottom, said Ms. Overby, the Forrester
analyst. "They might say, 'If we get really good at pricing the cold
medicine and promoting it and letting people know that, hey, we have
that product in stock and also at the best prices,' then they get people
into the store," she said. "The other items in the basket might not be
the lowest price in town, but the entire basket will be 10 to 20 percent
STILL, as Wal-Mart recently discovered, there can be such a thing as too
much information. Six women brought a sex-discrimination lawsuit against
the company in 2001 that was broadened this year to a class of about 1.6
million current and former female employees. Lawyers for the women have
said that Wal-Mart has the ability to use its human-resources database
to calculate back pay for the plaintiffs as well as to determine whether
women were fairly promoted and paid. The judge hearing the case, which
is pending in a federal court in San Francisco, has agreed.
The database is unusually detail-rich, said Joseph Sellers, a lawyer for
the plaintiffs. "They've put into their work force database the
information that bears on virtually every facet of compensation," he
said. "They have performance reviews, along with seniority, the time
spent with the company, which store they worked in. So you can compare
people working in the same store, to measure whether men and women are
If that comes to pass, it will be a rare moment indeed, with Wal-Mart's
carefully assembled data being channeled for a purpose Wal-Mart did not