business news in context, analysis with attitude

Content Guy’s Note: The Wal-Mart annual meeting was held last Friday, and as expected, it made a lot of news as the world’s most successful – and arguably most controversial – retailer looked to both the past and future. Art Turock – who through speeches and strategic innovation consultations helps supermarket retailers and manufacturers to achieve sustainable sales growth – attended the annual meeting as part of his ongoing study of what makes Wal-Mart tick.

(Turock already has authored Achieving Sales Growth When Wal-Mart Makes the Rules, which details the intricacies of Wal-Mart's unprecedented growth strategy as well as dozens of examples of exceptional retailers who are effectively Wal-Mart-proofing their stores.)

Immediately following the annual meeting, Turock filed the following report:


$250 Billion in Sales, Doesn’t Make You a Great Company

FAYETTEVILLE, Ark. -- The Wal-Mart Annual Shareholder’s Meeting is a combination rock concert and pep rally, punctuated by executives’ PowerPoint presentations. Assembled in the Bud Walton Arena, 18,000 shareholders and associates were entertained by Patti Labelle, and enjoyed product promotions from Hallie Berry, Susan Lucci, and Paula Abdul.

The group and exploded in cheers when Wal-Mart’s top four executives danced the twist and mash potato led by American Idol finalist, Diane DeGarmo. The loudest energy was triggered during three renditions of the Wal-Mart Cheer, which involves spelling out each letter of the company name with the hyphen signaling a dance move called “the squiggly.” While the playfulness of Wal-Mart culture was on display, executives also shared plenty of substance around these key themes.

Reputation and public image. Captured in a slide titled “An Even Greater Place to Work,” CEO Lee Scott described new corrective actions that he said were designed to address inequitable treatment of employees. With respect to diversity, the percentage of women and minorities holding a job will be equal to the number that apply for the job. As an example, if 50 percent of applicants for store manager jobs are women, then 50 percent receiving those jobs will be women. To bolster accountability for this initiative, the compensation program for all officer-level management, beginning with the CEO, will be affected. Scott said. “If we do not meet our individual diversity goals for the year, our incentive compensation will be reduced as much as 7.5 percent. Beginning next fiscal year, that penalty will increase to 15 percent.”

With controversy around employees being overworked without overtime compensation, Wal-Mart is piloting changes such as:

  • Alerts will be sent to remind cashiers that it is time for their meal break. Cash registers will automatically shut down if the cashier does not respond to the alert.


  • Associates will be notified any time a manager adjusts the amount of time put on their time records. For example, sometimes associates forget to clock in or out and adjustments are made. Regardless of the reason, the change is communicated to the associate and the associate has to verify that the change is correct.



Besides corrective actions, associates were given facts about Wal-Mart community good works and good jobs to counter misinformation (e.g., 70 percent of Wal-Mart jobs are full-time, 9,000 associates were promoted to manager roles last year, 1500 applicants arrived for interviews for 400 jobs in a New York-based supercenter), and encouraged to “Tell our story” at church functions, community group meetings, and among neighbors.

Scott positioned the critical media coverage as motivation for tougher self-scrutiny and urgent course correction. “Being in the spotlight helps us reach higher and further and ultimately be a better company.”

Make no mistake--future growth will come from food. Wal-Mart will add 50 million square feet of retail space in 2004 (compared to 1984, when the entire company’s total was 30 million square feet).

Significantly, the 40-45 new Discount Stores and expansions of current ones will all have enlarged food sections. Two-thirds of discount store conversions will become supercenters with a full allotment of food categories.

Supercenters are the favored format, and Wal-Mart will be adding 10 more supercenters this year beyond the original 9/03 forecast, to total 230-240 new stores. California’s first Wal-Mart Supercenter in La Quinta, opened in March, has generated sales 35 percent above company expectations. Wal-Mart claims to be pleased with Neighborhood Markets’ results, and greater expansion of this format is offset simply because Supercenters are more profitable and good locations remain.

A good company but not a great company. CFO Tom Schoewe opened and closed his presentation by donning sunglasses and repeating a line from a rock and roll song, “The future is so bright, I have to wear shades.”

Schoewe acknowledged that Wal-Mart had become the world’s first $250 billion dollar business, which is the equivalent of the combined sales of IBM, Hewlett Packard, Microsoft, Cisco, with $2 billion left over.

Despite such unprecedented sales records, Wal-Mart executives refused to utter the words, “great company.” As Kevin Turner, CEO of Sam’s Club said, “Only our customers and club members can call us great.” Other executives focused on the need to retain humility and avoid complacency that often accompanies great achievement.

As the frequently quoted Sam Walton said, “No company is ever as good as it can be.”

Most original innovation. Sam’s Club in Mexico is selling enlarged kiosk units, Mi Tiendita (“My Little Store”), featuring high demand items. So far 639 units have been sold at a price of around $1100. The idea came from two associates, who spotted the latent need to spur small business ownership, and has been praised by Mexico’s President Fox.

Besides efficient distribution, Wal-Mart is a strong merchandiser. As past-CEO David Glass reminded the group, “First we were merchants.” The marching order for all Wal-Mart businesses is to continue to evolve from cookie cutter stores to becoming the Store/Club of the Community. Besides incorporating more regional brands and using Sam’s Club membership card data to customize items for business member groups, Wal-Mart makes extraordinary efforts to stock the right products. Vice Chairman Tom Coughlin mentioned a store in Monticello, NY where for 11 weeks in the summer an influx of Jewish families participate in summer camps. By adding kosher foods in dry grocery, deli and lunch meat, Wal-Mart gained an extra $2 million in sales in those categories in those 11 weeks in 2003.

During National Small Business Week, Sam’s Club executives washed dishes in several Little Rock restaurants, and ended up discovering a dish detergent that is producing excellent sales.

The Turock Analysis: Implications for supermarkets and Wal-Mart competitors.

I was looking to see whether Wal-Mart would exhibit signs of succumbing to two of its greatest challenges—complacency/arrogance and diverting focus from their stance, “The customer is #1-always.” Based on the 2004 changes, Wal-Mart is not showing any emerging chinks in the armor on either count.

Wal-Mart was probably caught off guard initially when the media made them the lightning rod for public debate about global capitalism, employee compensation and health care, and the growing gap between socio-economic classes. To their credit, Lee Scott and his management team reacted non-defensively and learned the inevitable point---Goliath attracts plenty of slingshots. Wal-Mart will go beyond well-crafted advertisements extolling their virtues. For instance, rather than sticking to building more efficient cookie cutter stores, the Store of the Community program includes more sensitivity to modifying store appearance to better suit community preferences.

The implication for Wal-Mart competitors: Don’t expect the behemoth to self-destruct by doing dumb things to destroy its brand attributes.

The most daunting news for supermarkets is that Wal-Mart’s immediate growth will come from food categories despite the predictable lower margins.

According to the Annual Report, “we can more than compensate for the effect on gross margins in the short term through reduced markdowns compared to fiscal 2004 and in the foreseeable future by continuing to leverage our global sourcing programs and continuing to challenge our internal and external cost structures.”

I exhort supermarkets to follow Wal-Mart’s practice of learning from top competitors. Accordingly, the take-aways from Wal-Mart’s Annual Meeting include:

  • Don’t get defensive about sales slumps by becoming absorbed in industry conversation about leveling the playing field.


  • Create your own unique advantage by targeting customer segments Wal-Mart isn’t well suited to serve and deliver a compelling value proposition other than low price.


  • Push customization of products to the store/neighborhood level.


  • Push the relentless quest for making your business a great place to work.

KC's View:
It was interesting to us that just hours after the Wal-Mart annual meeting concluded, Lee Scott went to great pains to assure analysts that while the company was trying to improve its image, its priorities are “in the right place,” and that the company will not be preoccupied with such things.

"I don't want anyone to leave here thinking the only thing we're working on are the reputation issues," he said. "I spend more time on these issues than (previous CEO) David Glass ever had to. But still we are in the stores."

We assume that these are the same sorts of analysts who have been urging Costco management to pay its employees less money in order to become more profitable. So these comments from Lee Scott likely were music to the analysts’ ears.

Still, questions remain…

Window-dressing or a good faith step in (what we believe is) the right direction? Is it an attempt to shift the culture or shift the perception? For the moment, we give Wal-Mart the benefit of the doubt…though it seems like a particularly appropriate day to quote Ronald Reagan: “Trust. But verify.”

At the end of the day, while all the headlines have concerned Wal-Mart’s attempt at an image makeover, the real news for competitors is that the Wal-Mart Express speeds ahead. Whatever its motivations, the company’s real mission – to dominate the world of retailing, to sell virtually everything to almost everybody, and to put everybody else either out of business or at a severe competitive disadvantage – seems unchanged.

Which isn’t good news for the competition.

The answer, as retailers look to meet this challenge, isn’t to worry about Wal-Mart’s image in the community, but rather in addressing the needs and desires of consumers in ways that Wal-Mart does not. It is to wage a messy, unpredictable guerilla warfare on a behemoth that is remarkably consistent and efficient, and to do so by surprising and delighting shoppers.

Is such an approach guaranteed to work? Of course not. There are no guarantees.

But there’s always hope.

We want to thank Art Turock for offering both facts and perspective from the Wal-Mart annual meeting…and for making MNB users a special offer. He has some additional data analysis from Lee Scott’s presentation to analysts – including the 10 retailers Scott most admires, Wal-Mart’s top volume-producing products, the reasons behind the Sam’s Club resurgence in comp sales, and the acknowledged mistake made in Inglewood – and will make that available to anyone writing him at:

art@turock.com .