Retail Memo: Wal-Mart CEO Steps Down; Head of International Operations Mike Duke to Lead Retail Giant; USA Chief Castro-Wright Promoted

In a move today that took nearly everybody by surprise, Wal-Mart Stores, Inc. replaced CEO Lee Scott with Mike Duke (pictured at left), the head of the mega-retailer's international operations. Duke will take over as CEO of Wal-Mart in February, 2009. Wal-Mart's investors responded to Duke's appointment by sending the stock up $2.26, or 4.5%, to $52.92 on Friday. The consensus among analysts is that Duke is a good retailer and deserved the CEO's job.

Duke, a former department store executive, only joined Wal-Mart in 1995. he was named to head the company's international division in 2005, making his three year rise from that key position to CEO a meteoric one. Prior to joining Wal-Mart, Duke's 23-year retail career included work for Federated Department Stores and May Department Stores.

When he joined Wal-Mart in 1995 Duke first led the company's logistics divisions and U.S. Wal-Mart stores before being named international chief in 2005.

Wal-Mart also today promoted the CEO of its Wal-Mart USA operations, 53-year-old Eduardo Castro-Wright, to vice chairman of the corporation, effective immediately. He's slated to take on additional responsibility in global procurement.

The announcement paved the way for what some say is his eventual ascension to the top job at Wal-Mart Stores, Inc. Many believe Castro-Wright, who is considered an extremely excellent retailer, is ready now to be CEO. However, his promotion is a pretty clear sign he's next in line for the position if he wants it whenever Mike Duke leaves. Duke held the same vice chairman position Castro-Wright was just promoted to, as did Lee Scott, before being named CEO. Duke and Scott were responsible for different aspects of Wal-Mart's business though as vice chairman.

Current CEO Lee Scott, who has worked at Wal-Mart for three decades and served as CEO for the last nine years, isn't going away anytime soon though. He will continue as chairman of the executive committee of the board and as an adviser to Mike Duke through January 2011, Wal-Mart spokesman David Tovar said today.

The timing of the announcement caught most people in the retail industry and on Wall Street by surprise. Changes at the top for huge corporations like Wal-Mart generally don't come towards the end of the year or before the holiday season. Additionally, such changes are usually made at the beginning of a major corporation's fiscal year, which isn't the current case at Wal-Mart.

"Lee (CEO Scott) decided the time was right for him to retire and approached the board about doing so," Tovar said. "The board has an ongoing and rigorous succession plan process. We think the right time is now. It's a time of strength for us."

Wal-Mart didn't name a successor to Mike Duke today as part of the changes at the top for the world's largest corporation and retailer. Duke is Wal-Mart's most senior international executive, which is a key post. Some are suggesting the fact a replacement wasn't named today for Duke could mean Wal-Mart might make an outside hire to replace Duke for its most senior global executive position.

Lee Scott's nine years as the head of Wal-Mart Stores, Inc. has been overall a very successful tenure.

Under Scott's leadership, Wal-Mart has put a relentless strategic and operational focus on value that has clicked with shoppers facing myriad economic concerns. He has also put a major emphasis on revamping merchandise assortment, improved store layouts and shored up Wal-Mart's environmental and labor image, positioning the chain as a Wall Street darling after a prior streak of criticism by the media, labor and environmental groups. Wal-Mart currently is the only company on the Dow Jones listing that's up for the year, for example.

Additionally, Wal-Mart has also become the number one seller of food and grocery products in the United States in terms of overall national market share. Prior to Scott's taking the helm as CEO nine years ago Wal-Mart wasn't even close to achieving that distinction.

As CEO Lee Scott launched a massive new store opening program in the U.S. and internationally, focusing mostly on the retailer's mega-Supercenters and Sam's Club warehouse format club stores, but also on its discount stores and Wal-Mart Neighborhood Market supermarkets.

The CEO also has led an aggressive new format development program at Wal-Mart. All of the new Wal-Mart formats in the United States for example -- the small-format Marketside grocery and fresh foods stores; the "Community Market" Hispanic prototype store, the first of which opened in Texas earlier this year, the new smaller (100,000 square feet) Sam's Club prototype; the new Supercenter prototype design, and the new hybrid, smaller Supercenter located in vacant buildings (the first one, at 100,000 square feet located in a former big box supermarket building, opened in Modesto, California on November 12 -- have one basic thing in common: They all offer lots fresh foods and groceries for sale in them.

That all these new formats sell food and groceries as a primary or key feature isn't an accident. What likely could be seen historically as one of the two most important contributions Scott has made during his nine year run as CEO at Wal-Mart could very well be his decision to put the retailer on the path to becoming the dominant seller of food and grocery products in the United States -- and eventually the world. In fact it's this ficus on consumables that most analysts attribute to Wal-Mart's current success in the U.S. and globally during the severe economic recession and financial meltdown.

Scott's relentless pursuit of consumers' food and grocery dollars also led to a decision earlier this year at Wal-Mart USA to start converting scores of its Wal-Mart discount format stores throughout the U.S. in hybrid Supercenters by adding 15,000 -to- 50,000 (depending on the available space) square feet to the discount stores, all of it and then some being devoted to consumables, including fresh produce and meats.

Most of these ideas and concepts for the U.S. came from Eduardo Castro-Wright, who yesterday was the CEO of Wal-Mart USA and today is the company's new vice chairman. However Lee Scott gets CEO credit just like he gets faulted for the negatives, as it should be.

Lee Scott's other major historic contribution has been push as CEO to make Wal-Mart an even bigger global retailer than it was when he took over the head office eleven years ago.

Under Scott's leadership Wal-Mart acquired the Asda chain in the United Kingdom, making it that nation's second-largest retailer after Tesco.

The company grew business in Latin and Central America dramatically.He did a joint venture deal bringing Wal-Mart into India, which has the world's second-fastest growing economy after China.

Scott grew Wal-Mart-China in a huge way, even saying it will someday in the not too distant future become the retailer's largest market, eventually surpassing the United States in terms of sales.

Most recently Scott inked a deal to bring Wal-Mart stores to Russia, which also has one of the world's fastest-growing economies, although that growth has slowed considerably since oil dropped from $142 per-barrel to $50 a barrel in just the last couple months. But it will rise once again -- the price of oil that is.

By naming Mike Duke, the head of its global business, as the new CEO, Wal-Mart is clearly sending a message that it plans on becoming an even bigger international retailer. The retailer's international division, which Duke heads, accounts for more than a quarter of Wal-Mart's $400 billion in annual sales. The company's future growth is globally. Although there's still room to grow sales in the U.S., it's the retailer's most mature market and pales in comparison to the opportunities internationally.

During his tenure as head of international operations, Duke had some hits, but also some big misses. For example, In 2006, Wal-Mart withdrew from Germany and Korea, two big setbacks for the company. And despite taking control of its Japanese business in 2007, Wal-Mart continues to struggle there.

Successes though include Brazil, which has experienced phenomenal growth and serves as a model for Latin America, and India, where Wal-Mart scored a coup by forming a partnership with Bharti Enterprises to expand in that country despite local opposition from mom-and-pop retailers. Add China to the list as well.

And Asda in the United Kingdom is doing extremely well despite that country's economic recession and its position as a distant number two to Tesco. Tesco has a 31% UK market share to Asda's about 17% share. But Asda has consolidated its lead over number three Sainsbury's, which was neck-to-neck with Wal-Mart-owned Asda just two years ago for number two, but now has about a 14.5% share to Asda's about 17%.

Beginning next year when he takes over Mike Duke will have a much different political agenda to contend with as CEO than Lee Scott did during the last eight years of the Republican Bush Administration. With a new Democratic President, Barack Obama, and a Democratic majority in both the U.S. house of Representatives and U.S. Senate, issues such as unionization, which Wal-Mart has been able to keep at bay, are going to become much more pressing for the company -- and for the new CEO.

If organized labor can get the Employee Free Choice Act passed, a provision of which ("quick check") allows workers to merely check a box if they want to be represented by a union rather than going through the current and sometimes elaborate secret ballot voting process, it will make it much easier for unions like the United Food & Commercial Workers (UFCW) to organize store-level Wal-Mart employees, something the union has failed to do for decades. President-Elect Obama and a majority of House and Senate Democrats support the Employee Free Choice Act. Therefore its prospects for passage in 2009 currently look strong.

New CEO Duke also will have some political fences to mend globally; fences he has yet to mend as head of Wal-Mart's international operations.

For example, in September, Mexico's Supreme Court chastised Wal-Mart for paying employees partially in vouchers that could only be used at company stores. The court compared Wal-Mart to the Mexican dictator Porfirio Diaz, who ruled the country from the late 1880s to 1911.

Wal-Mart is now Mexico's number one retailer of food and grocery products. As such it can't afford to get on the wrong side of the government.

Other global issues include its Asda chain in the United Kingdom. That nation's top three retailers -- Tesco, Wal-Mart's Asda and Sainsbury's -- have been involved in a multi-year battle with the British government involving charges of anti-competition and price fixing. Earlier this year Asda CEO Andy Bond directed executives of the chain to cooperate with British government authorities against competing chains in return for a promise that the retailer wouldn't be prosecuted or fined. The issue is still taking shape but Asda isn't completely in the clear yet either.

It will be extremely interesting to see who Wal-Mart names to replace Mike Duke in the key position of head of international operations.

Additionally, with Eduardo Castro-Wright moving from CEO of Wal-Mart USA to his new position as vice chairman of Wal-Mart, that opens up the key position of head of U.S. retailing, which remains Wal-Mart's single-largest division in terms of annual gross sales.

We will be watching this closely because since so much of Wal-Mart USA's strategy is focused on selling consumables, and developing new formats that feature food and grocery products, we would expect a person with a food and grocery retailing background perhaps to assume Castro-Wright's position.

Of course that's far from a given since Wal-Mart is fairly deep with food and grocery sector talent below the USA CEO position. However, naming a person with extensive food and grocery retailing experience, either from inside or from outside Wal-Mart Stores, Inc., would send a strong signal that Wal-Mart is even more serious than ever before about becoming the dominant force in food and grocery retailing in the U.S.

[Photo Credit: Wal-Mart Stores, Inc.]

Retail Memo: Here Comes Wal-Mart USA -- Again and Again and Again

Mega-retailer Wal-Mart Stores, Inc.'s Wal-Mart USA division (it's largest in terms of annual sales), which now is the number one seller of food and groceries nationally in the United States, has big plans for its 2009 and 2010 fiscal years despite the current financial crisis and recession. We detail those plans below in a special report...

Eduardo Castro-Wright, CEO of Wal-Mart USA, was feeling his retailing oats a bit on Tuesday at the Morgan Stanley retail conference in New York City. He also made news at the conference, which is something Castro-Wright seems to enjoy doing despite Wal-Mart's generally tight-lipped culture. Tuesday's Morgan Stanley retail conference was broadcast over the Internet.

"I've read and heard most of the (retail) industry is struggling," Castro-Wright said to a few laughs from attendees during his presentation at yesterday's retail conference.

"But Wal-Mart is seeing positive trends," the head of Wal-Mart Stores, Inc.'s North American operations told analysts and others attending his presentation . "Customers now are shopping more frequently (primarily because of cheaper gasoline) and there hasn't been a significant change in how much they spend during each visit," he said.

Earlier this month Wal-Mart reported a nearly 10% rise in quarterly profits as consumers appear to have flocked to the discounter's stores. This despite the severe economic recession, and despite the fact other combination grocery and general merchandise mass merchandise retailers like Target and Costco are struggling. Target Corp reported a near-24% drop in income on Tuesday and Costco reported a 1% quarterly loss a couple weeks ago.

Holiday food and grocery price reductions every week

Castro Wright said Wal-Mart is rolling back prices on many food and grocery items for the Thanksgiving and Christmas holidays, meaning numerous (particularly holiday-related and staple items) grocery prices in all of the retailer's stores beginning this week are even lower overall than they were last week, he said. The rollbacks will remain in place for the Christmas holidays as well, Castro-Wright said.

In addition, every week between now and Christmas Wal-Mart will do additional price rollbacks on food, grocery, general merchandise and holiday-oriented items and products, Castro-Wright said.

Addressing the current cutback in consumer spending across the board in the U.S., including on food and groceries, the Wal-Mart USA CEO said: "The consumer will spend when you have the right prices and offerings. So with Christmas coming, I thought I would give you a little confidence."

More new formats

Eduardo Castro-Wright also talked about Wal-Mart's expansion in the U.S. for the company's 2009 (current) and 2010 fiscal years at yesterday's Morgan Stanley retail conference.Breaking a little news he said the mega-retailer is currently working on developing a new "high efficiency" retail format that would have higher sales per square foot than some of its current stores. According to our sources this is a smaller version of the Supercenter.

The executive said Wal-Mart also is looking at using smaller-sized stores to enter markets where it does not have a presence today, this includes its new 100,000 square foot smaller Sam's Club prototype store it's been testing, along with its new small-format Marketside fresh foods and grocery stores (four open so far in the Phoenix, Arizona region as we've reported), its 43,000 square foot Wal-Mart Neighborhood Market supermarkets, and its new hybrid Wal-Mart Supercenters, the first of which opened in Modesto, California last week.

We've been suggesting most of this year that Wal-Mart will use its new small-format Marketside and other new, smaller-format stores to penetrate market regions such as the San Francisco Bay Area in California, as well as urban regions in the state like Los Angeles and San Diego, where it has little opportunity to locate mega-Supercenters because of both geographical limitations and objections by city governments and community groups to the giant stores.

At about 100,000 square feet that Supercenters, which is in a remodeled vacant retail building, is about 80,000 square feet smaller than the average-size Wal-Mart Supercenter. It's "hybrid" because it's in a formerly vacant building rather than being built from the ground up which is what Wal-Mart historically does with its Supercenters. Despite the smaller size the Modesto hybrid Supercenter has a full supermarket inside, offering a complete assortment of fresh foods and groceries. About 40,000 square feet of the total 100,000 square feet of the store is devoted to food and grocery items. The remaining 60,000 square feet contains general merchandise products just like a larger Supercenter.

Adding food and grocery items to Walmart.com

Castro-Wright didn't address it during the conference on Tuesday but Natural~Specialty Foods Memo has noticed Wal-Mart has listed thousands of food, grocery and non-foods items on its Walmart.com Web site, indicating the retailer will soon be offering food and groceries at its online store, along with all of the other products it sells there.

There are no prices on the food and grocery items at Walmart.com as of yet. However we're told by a good source the prices are coming soon. Our source also tells us Wal-Mart will ship the items via UPS and Federal Express, just like it ships all of the general merchandise products it sells via its Web site. Amazon.com sells a huge selection of food, grocery and beverage products on its Web site, and ships them via these same carriers as well, for example.

Add another national format -- actually more of a product line extension to Walmart.com -- to the mega-retailers multi-format food and grocery retailing empire: online grocery retailing. Its cheap -- no stores, cheaper marketing costs and the like -- and its national. More importantly it will provide Wal-Mart with yet another niche or piece of the multi-format puzzle in its all out battle to dominate food and grocery retailing in the U.S., where it now is the national market share leader.

Hundreds of new U.S. stores in FY 2009 and FY 2010

The Wal-Mart USA CEO also said on Tuesday that despite the fact the company has cut back the number of new stores across all formats it plans to open in the U.S. in its 2009 (current) and 2010 fiscal years, it doesn't mean the retailer plans to be merely playing around the edges in terms of new store openings.

In fiscal year 2009 (the current fiscal year) Wal-Mart plans to launch 191 new stores of various formats -- Supercenters, Sam's Club stores, Neighborhood Market supermarkets, Marketside small-format food stores and others -- according to Castro-Wright. That compares to the 218 new units Wal-Mart opened last fiscal year (2008).

In fiscal year 2010, Castro-Wright said Wal-Mart will launch between 142 -to- 157 new units in the U.S.

Considering the size of most of the Wal-Mart format stores, particularly Supercenters and Sam's Club stores, that's still a whole lots of retail square footage for the 2009 and 2010 fiscal years. Additionally, that's a whole lot of new square footage in what many say is a mature retail market, the United States.

Castro-Wright said Wal-Mart would focus the majority of these new stores on what he called 15 "opportunity markets" in the U.S. that the retailer has identified and says account for nearly 40% of total retail sales. He didn't detail these 15 regions on Tuesday. However, we are working on our sources to find out the 15 market regions and will report the information when we get it.