NEWSMAKER-Duke to lead Wal-Mart as it gains clout

NEW YORK Fri Nov 21, 2008 5:37pm EST

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NEW YORK Nov 21 (Reuters) - Mike Duke, the incoming chief executive officer of Wal-Mart Stores Inc (WMT.N), takes over at the world's largest retailer just as its global influence hits a peak.

Outgoing CEO Lee Scott has thrust Wal-Mart into the center of the debate on global issues such as the environment and healthcare, saying Wal-Mart can play a vital role solving issues that "profoundly" affect its shoppers and its business.

A contracting economy is also playing to Wal-Mart's strength. In the past year, Wal-Mart's sales at U.S. stores open at least a year have rebounded from record lows as shoppers flock to its discount prices and it is poised to gain market share as the downturn limits budgets.

The main challenge could come from the new administration of U.S. President-elect Barack Obama, who has endorsed legislation making it easier for workers to unionize, a major sticking point for Wal-Mart.

"Mike Duke doesn't come in with very many headaches," said Bernard Sosnick, a retail analyst with Gilford Securities, who has covered the retailer for about 25 years.

"He comes in as a person who has to preside over the continuation of what is just the beginning of major changes for the better."

Duke will become CEO Feb. 1, 2009, shortly after Obama takes office. [ID:nN21465040]

A BATTERED REPUTATION

Scott began to reposition the retailer in 2005, after Wal-Mart's U.S. sales growth started to slow and its reputation came under attack from groups accusing it of mistreating employees and driving competitors out of business.

Informed by Wal-Mart's role in bringing relief to victims of Hurricane Katrina in August 2005 and the positive image that helped cultivate, the company has since tried to present itself as a lifeline to hard-hit Americans.

Scott has vowed Wal-Mart will cut energy usage, reduce waste and offer lower-priced health care to employees.

Last year, Scott joined forces with the Service Employees International Union, one of its most vocal foes, to push for universal health-care coverage.

In October, Scott flew to China to tell its Chinese suppliers to clean up their act or face the possibile loss of Wal-Mart's business. This week, the company donated tens of millions of meals to U.S. food bank Feeding America.

"When you get to be big and powerful, it is even more important to do the right thing to keep your corporate reputation intact because there are enough people try to attack you all the time," said Margaret Gilliam, a veteran retail analyst who has followed Wal-Mart for 30 years.

Wal-Mart touted itself as "relentlessly non-partisan" during the presidential campaign, but it strongly opposed the Employee Free Choice Act. The act would make it easier for workers to unionize, by signing a card rather than holding a vote, and Obama was an original co-sponsor of the bill.

Wal-Mart has kept its U.S. stores union-free and Corporate America is bracing for a bold offensive from organized labor, which strongly supported Democrat Obama, to push for passage of the legislation. [ID:nN05455538]

FOLLOWING IN SCOTT'S FOOTSTEPS

Duke's Wal-Mart training is similar to the track followed by Scott. He once ran the retailer's widely respected logistics operations, the same unit where Scott rose through the ranks on his way to the CEO's office.

As head of the international operations, one of his primary tasks was to find a way for Wal-Mart to break into the retailing market in India, home to a fast-growing middle class. It now has a partnership with India's Bharti Enterprises and will open its first cash-and-carry store there next year.

But Wal-Mart's arrival sparked public outrage and concern it would drive small retailers out of business -- a charge that has dogged the company in the United States as well.

On a visit to India in 2006 to urge the government to grant Wal-Mart entry, Duke argued Wal-Mart's logistics know-how would help modernize a badly outdated distribution system. Duke envisioned using Wal-Mart's supply chain expertise to reduce spoilage and lower prices in a country with high rates of poverty and hunger.

One of Duke's toughest decisions while running the international business was jettisoning Wal-Mart's money-losing German stores. It was a humbling failure for Wal-Mart at a time when its flagship U.S. division was facing one of its toughest years, with its stock price stuck in a six-year rut.

Duke has since laid out a strategy to "major in the majors" and focus expansion on global markets where it can be a big player.

Gilliam said Wal-Mart's international business, which currently accounts for almost a quater its total sales, will play a more important role in the future.

"It's going to have to, just because their very size means they can't grow to the moon in the United States," she added. (Additional reporting by Emily Kaiser in Washington)

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