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, Arkansas, 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 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.
PHOTO: NYTIMES
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," Dillman said in a recent interview. "And the pre-hurricane top-selling item was beer."
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, too.
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 US 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 experts.
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 information obsessively.
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.
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 Web site, Wal-Mart posts a privacy policy that states: "We take 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 purposes."
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, 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.
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.
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," Dillman said.
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, Connecticut.
"If you think of the impact of shedding US$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."
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