The collective sigh of relief that traditional food retailers might have felt as Wal-Mart Stores slowed its domestic expansion pace during the last few years didn’t last long.
Although the Bentonville, Ark.-based company might not be building new stores in the U.S. at the breakneck pace it once was, it only accelerated its low-price leadership this year with the return of a more aggressive schedule of “rollbacks.”
“It is important to strengthen Wal-Mart’s position as the everyday price leader and to separate ourselves even more from competitors,” said Mike Duke, president and chief executive officer, in a recent earnings conference call with analysts.
Duke has been in the post for about a year and a half, taking over just as the country was in the midst of an economic downturn. Although sales in the U.S. have been sluggish — comparable-store sales have been negative in the U.S. for the last four quarters — and some merchandising efforts like SKU rationalization have backfired, the company has shown strong improvement in profitability during that time through aggressive cost-containment and increased productivity.
“The fundamental thing Mike Duke and [former Walmart U.S. CEO] Eduardo Castro-Wright did at Wal-Mart was that they reset the financial model for Wal-Mart in the U.S. for a low-growth world, which is going to be the case for the next five to 10 years,” said Bryan Gildenberg, chief knowledge officer, Kantar Retail. “They are going to have much less square footage growth than they have historically, and Wal-Mart’s engine needed to be retooled to generate cash in a slower-growth environment. That’s hard work, and they have done a reasonably good job with that.”
Duke came into the CEO role with perhaps the broadest experience within the company of anyone who has ever held that position. His background included stints in logistics, as well as running the U.S. operations and the company’s international division. Duke joined the company 1995, after spending 23 years with Federated Department Stores and May Department Stores.
It is his international experience, in particular, that some analysts said could exert a great deal of influence his tenure as CEO. Duke headed Wal-Mart’s international business from 2005 until February of last year, and international business is expected to be the main growth engine for the company in the near term.
At the company’s annual shareholders’ meeting last month, he explained that his primary areas of focus as the CEO of the company are “people and sales,” noting that the company’s global expansion will add 500,000 jobs around the world during the next five years.
He said he sees four priorities for Wal-Mart:
“First, we must become a truly global company. Second, we must understand the business challenges that retailers will face and solve them. Third, we need to play an even bigger leadership role on social issues that matter to our customers. And most important, we must do all of this while keeping our culture strong everywhere.”
He described himself as a leader who thrives on the details of the business — “I love the details of retail,” he said — and one who likes to “manage by walking around,” citing a recent visit to a vendor meeting.
One industry observer, who asked not to be identified, described Duke as
“not a classic operator,” but someone who “relies on good people to give him the information.” His predecessor, Lee Scott, saw Duke as an intelligent and “honorable individual” who would be a good leader for the company.
“He’s not a great orator, but he’s a first-rate, well-balanced executive,” the observer said.
At the annual meeting, Duke stressed the importance of the company’s international operations in its future growth. Last year, international sales passed $100 billion for the first time, and square-footage growth outpaced growth in the U.S. by more than 50%, with 21 million added internationally and 13 million in the U.S. The company ended the most recent fiscal year with more than 8,400 stores worldwide, operating in 53 different formats.
“In the future, we’re still going to build large stores, but we’ll also build a lot of smaller stores and have many more points of distribution,” he said.
One area of focus under Duke has been creating a globally focused supply chain to help reduce procurement costs for its far-flung operations.
Under the direction of Castro-Wright since last year, that initiative has already begun yielding benefits, analysts said. Castro-Wright has the opportunity to drive costs even lower through global sourcing efforts, observers said, as he cedes the role of managing the U.S. operations to Bill Simon as part of a recent management shift.
It is Duke’s first stated priority — becoming a truly global company — that looms large for the CEO going forward, according to Gildenberg of Kantar Retail.
“His challenge over the next three years or so is to figure out how Wal-Mart moves from being a U.S. company with international operations to being a truly global company,” he said. “That doesn’t mean they have to be in every country in the world, but it does mean they have to think about their business more like the great global enterprises do, and there are a lot of changes that are going to come about as a result of Wal-Mart thinking of itself as a global enterprise.”
For example, he said, since the company has launched some operations in India (through a joint venture with Bharti Enterprises), could it possibly someday centralize its technology functions there, where costs would presumably be much cheaper?
Also, the company has for some time been importing talent from its overseas operations, and some observers say there are ongoing opportunities for this influence to continue, particularly as Wal-Mart seeks to develop smaller-format stores to help it penetrate urban markets.
“Wal-Mart historically has been a one-way best-practices organization, and I think one of the big changes in the Duke era has been the understanding that best practices is a two-way process,” said Gildenberg.
Format development in particular can benefit from international expertise, with Wal-Mart’s array of banners and formats outside the U.S., he explained.
The company has put on hold its development of one small format it had been testing in the U.S., called Marketside by Walmart, but it is continuing to build smaller supercenters and probing deeper into urban areas, such as with its recent announcement about plans to blanket Chicago with retail stores.
As one of the world’s largest companies, Wal-Mart will be at the center of many global hot-button topics in the coming years, from childhood nutrition to sustainability, Gildenberg explained.
“Wal-Mart is an enormous commercial enterprise,” he said. “If you are looking out at the next three years, the continuation of understanding what its responsibilities are as a global enterprise, both to shareholders and to the globe, will be Duke’s legacy — the extent to which he helps Wal-Mart figure out the answer to those questions.”
Duke seems to understand this. At the company’s annual meeting, he cited as one of his favorite quotes: “To whom much is given, much more is expected.”
“If we want the freedom to pursue our business goals around the world, we must play an even bigger leadership role in helping solve social challenges,” he said.
— Mark Hamstra