The Hindu Business Line : Getting inside Wal-Mart

It’s Saturday morning at Bentonville, Arkansas, and a weekend holiday at Wal-Mart’s Home Office. If you expect to see a naked display of overwhelming architecture to symbolise the headquarters of the world’s largest corporation and retailer, number one on the Fortune list, you could be far wrong. A large unprepossessing two- or three-storeyed brick-coloured building is what you will see. No frills, no dominant edifice to the shopper who has made Wal-Mart the $345-billion corporation it is; only a large parking lot in front with scores of cars of those employees who have come to catch up on some work. It’s from here that the giant retailer controls 6,956 retail units worldwide, sourcing from over 60,000 suppliers in 70 countries, dealing in literally thousands of brands and serving about 176 million customers weekly in 13 countries – and India could well be the next frontier it wants to conquer and an addition to that list.

We, an Indian media team invited by Wal-Mart to attend its annual general meeting, a yearly extravaganza, are on a tour of the home office. As it’s a holiday, most of the cubicles are empty save a few of those who are clearing their backlog.

Heavy fireproof steel doors give access to different departments. Names of those whose cubicle it is are hung from the ceiling. The office is comfortable, not opulent; the negotiating rooms where suppliers interface with Wal-Mart executives are quite bare and cramped. We enter the section where senior management sits; the offices of the two Vice-Chairmen of Wal-Mart Stores, Inc, John Menzer and Michael Duke, are modestly sized. Then we peek into President & CEO Lee Scott’s office; not a cavernous office like the CEO offices one sees here in India; perhaps the only perk is that he has a large window overlooking the parking lot and road! A large fish tank dominates the room while cushy leather chairs surround a large desk. Not an office one would expect to see of the CEO of the world’s largest corporation.

But, that’s Wal-Mart culture for you. As a senior official points out, the retailer is a frugal company and not known for its lavish ways, a trait perhaps reflected in its mission statement of ‘saving people money so they can live better.’

And, emphasised too by Scott’s letter in the company’s 2007 annual report where he talks about the price paid by those who have served Wal-Mart to build the company — whether it meant working on weekends, keeping a modest office space or “always putting others before ourselves.”

The retailer dominates the way of life and mindspace for much of working class America, also reflected in the coverage that the retailer receives in the US media.

While its customers could well be happy with the ‘everyday low prices’ slogan that has powered Wal-Mart to the position of the world’s largest retailer, its methods and labour relation policies have increasingly come under fire. It is also blamed for forcing small stores out of business in the US and pushing manufacturing jobs from the US to lower cost countries, especially China. As a Bloomberg report points out, Wal-Mart Stores Inc is defending itself against do zens of wage suits and the biggest discrimination complaint on record and also faces pressure to settle with its fired marketing chief Julie Roehm. The report says Wal-Mart fired Roehm without saying why in December last and dropped the advertising agency she had selected. Roehm then sued Wal-Mart for breach of contract and fraud while the retailer countersued three months later accusing Roehm of taking gifts from DraftFCB, the agency she had hired, and of having an affair with a subordinate.

Over the past few years, as Wal-Mart struggles and copes with falling sales in the US, controversy has dogged it at every turn. The company, admits its own executives, lives in a fish bowl, a target of the media as well as scores of anti-Wal-Mart activists.

Its controversial status has preceded Wal-Mart to Indian shores as well, a fact not lost on Mike Duke, Vice-Chairman, and in charge of the retailer’s international operations. In an interaction with Indian media after its AGM extravaganza, he was candid to acknowledge the groundswell of opposition to Wal-Mart’s impending entry into India, in a tie-up with the Bharti group. However, Duke was quick to add that the overall upsurge of support from the Government and small businesses is positive and he will count on that to take the project forward.

Quite aware of the hackles that Wal-Mart’s impending entry has raised, Duke emphasises: “What I felt when I came to visit is that there’s a gigantic groundswell and desire for Wal-Mart to come to India from the Government and others in business that will want to work with a company like ours and Bharti. I found tremendous positive support from small businesses who want a better supply chain — yes, there’s a groundswell (of opposition) but the giant groundswell is positive.”

Growing new markets such as China, where it is already present, and India, will be crucial to Wal-Mart’s growth as it cuts back on investment in the US markets where it is seeing tapering growth.

The most significant announcement from the retailer during its AGM was to cut back on expansion of Wal-Mart supercentres, large format stores which have been the engine of growth for Wal-Mart so far.

The retailer, which had 2,307 supercentres in the US at the end of April, announced that it expects to open 190-200 supercentres this year, down from its previous target of 265 to 270 such centres. And, from next year, it expects to open 170 supercentres every year.

While Wal-Mart struggles in the US, a fact catalogued very closely by US media and analysts, its international division, led by Mexico and increasing momentum at Asda in the UK, which it took over a few years ago, saw international sales surge more than 30 per cent to $77 billion last fiscal.

Wal-Mart has grown its business in the 13 other countries it operates in through a series of smart acquisitions and today is present in a large way in Mexico (where it added 120 new stores and operates six store formats), Central America, China and Japan, among other countries. And, it has let the local brands be, content to streamline the supply chain, distribution and expansion, rather than impose the Wal-Mart brand. As Wan Ling Martello, Senior Vice-President for international finance, pointed out to media persons in a briefing, 75 per cent of Wal-Mart international’s revenues come from stores that don’t carry the Wal-Mart brand.

While Duke endorses the India growth story, he is cautious not to set a time frame for Wal-Mart’s eventual entry into India, though he emphasises that outsourcing will grow. As he elaborates: “I believe we have $600 million through direct sourcing in India and about $1.5 billion of products if you add in the indirect sourcing by US companies that produce the product in India and supply to Wal-Mart.

We tried to do an estimate last year about how many people who are actually working on products for Wal-Mart which they can ship to us all over the world; our estimate is that there are a hundred thousand people working in factories in India on products for Wal-Mart.”

Asked too about the direct sourcing from China, which touches $9 billion, and if there’s scope to increase from India, Duke says, “China has been developed longer and infrastructure and factories coming up in China is something that the world has been involved in for a long time. Of course, if India continues developing infrastructure and the development of how the sourcing works the rate of growth of opportunities of sourcing from India will be faster.”

While the exact contours of Wal-Mart’s India plans are yet to be revealed, it is clear that growth for the giant retailer will in future come from new markets, never mind blips like Germany and South Korea where it exited from last year.

Almost 25 per cent of its sales comes from its international markets while in the US it looks to reorient itself to a new breed of consumer.

As Eduardo Castro-Wright, President and CEO of Wal- Mart Stores, USA, pointed out in an US publication, Retailing Today, customers today have very different needs today than they did 40 years ago. As he’s quoted: “Ethnic ity and demographics are changing rapidly. In the next 40 years, people of Hispanic and Asian descent will represent more than one-third of the US’ total population and retailers need to embrace change to stay alive.” That explains why at Wal-Mart in Bentonville, deep in the heart of the US Mid-West, signboards are in Spanish as well.