Walmart’s bid for world domination

Walmart is already the undisputed king of retail. But president and chief executive Mike Duke has a vision to build a bigger and truly global retail giant.

Last Friday Walmart held its annual shareholders’ meeting at the Bud Walton Arena in Fayetteville, Arkansas, near the retailer’s Bentonville head office. “I want all of you to be able to say that at this moment Walmart committed to being a truly global company and began building the next-generation Walmart,” Duke told an enthusiastic audience.

The arena was packed with staff from 15 countries from the UK, China, Japan and Mexico, demonstrating the retailer’s international reach.

Duke said the first thing to do was to “serve customers as a local store”, but highlighted that much work could be done in sharing best practice, productivity and leveraging the global supply chain.

New challenges

His message was delivered to a 16,000-strong crowd. Star guests including singers Mariah Carey, Enrique Iglesias, Mary J Blige and actor Jamie Foxx, who compered the event, added to the showbiz spectacle. But underlying the all-American razzmatazz was a serious message.

Much was made of the fact that Walmart’s international operation has hit sales of $100bn (£68.9bn) for the first time, and now makes up 25% of the total turnover of the group. Duke also said Walmart would “look to international for a greater rate of growth”.

The individual countries certainly appeared to be ready to meet the challenge. As Walmart International chief executive Doug McMillon introduced each of the delegations from the different countries, they whistled, stamped their feet and waved their respective flags, each trying to outdo the others, with the UK’s Asda staff standing proudly in their Asda Price T-shirts.

The alignment of priorities across the group was clear. When Duke said the business faced new challenges and that “retail will soon enter an era of price transparency”, he could have been talking specifically about any of the individual markets Walmart operates in, not least the UK. And, just as Asda is confident that it can claim to be the UK’s cheapest grocer, Duke said: “We will win on price leadership, and we will win big.”

The goals may be the same, but the execution of the strategy varies. In the US, there is ‘Mr Rollback’, a staff member from Richmond, Virginia, who currently stars in the grocer’s ad campaign showing products that have had their prices slashed. In the UK, meanwhile, Asda has its Price Guarantee, which promises customers a voucher refund if their basket of groceries was found to be cheaper at rivals Tesco, Morrisons or Sainsbury’s.

Duke also outlined the group’s key priorities. He spoke of the need to drive ecommerce, saying, “Building the best website will be just as important as getting our store formats right”. And he pointed to the need to open smaller shops as well as larger stores, to have more points of distribution, and to “keep our culture strong” - all of which are central for Asda.

Despite the glitz of the event, there were some tough home truths to be faced. Duke admitted there is work that needs to be done, and the current economic climate was tough.

“In Walmart US, we need to improve our comparative store sales,” he said. “And in international, we need to continue to set an aggressive pace of growth and have a constant emphasis on returns.”

He told Retail Week: “As a retail business we interface with 200 million customers a week around the world and that does give us a good feel about the status of the economy.

“This is a global recession and there’s not a market that we operate in that hasn’t been impacted in some way.”

He said the fear of unemployment was “very concerning” for customers in the US, and across the globe there was “variability”. He added: “Certain mature markets are closer to the US, and some emerging markets are coming out of recession quicker.”

Walmart US chief executive Eduardo Castro-Wright added that if the US store base was divided into areas of high and low unemployment, then “the difference is huge” in terms of recovery.

The pattern of the US is similar to the UK. Castro-Wright said that US sales performance had been affected by macro-economic factors such as unemployment and petrol prices, the competitive landscape, and some “self-inflicted pain” in the grocer’s ranging.

And Asda is doing just that. Earlier this year, Asda admitted that sales had been affected. The grocer had relied too heavily on promotions; it had not secured as much new space as its competitors; the bad weather meant shoppers couldn’t get to its out-of-town shops and work needed to be done on its ranges. Duke is confident in the whole business’s plans though, and added: “If we see something we need to fix, we go after it.”

Turning the page

But speaking to Retail Week in Bentonville, Asda’s newly appointed chief executive, Andy Clarke, says the grocer is entering “a new chapter”.

He believes that three elements point to Asda approaching a new era: the change of leadership, with Clarke taking over from Andy Bond, who is now chairman, on May 11; the acquisition of hard discounter Netto at the end of May; and the underpinning of its price position, reinforcing its Everyday Low Prices initiative.

“The change of leadership personally gives me the opportunity to turn the page,” he adds.

Clarke says that, in his first weeks since taking over, he has been listening to staff and “walking the floor”, engaging in what Duke describes as “management by walking around”.

He has also been getting “much closer” to the commercial team, as he has the role of trading director to fill, following the departure of Darren Blackhurst last month. Clarke says he will appoint a replacement in due course. “Sometimes people surprise you when you empower them and that’s the message I’ve given to the trading floor,” he adds.

He is poised to appoint a new chief operating officer - the role he previously held - “in the next few weeks”.

Clarke insists he will be “very dogmatic about the way we manage our people”. “I will spend a lot of time on the culture, because I believe in it. I do think the way you interact with your people can have a significant customer and colleague benefit,” he says.

It is staff, rather than “highly paid consultants”, he says who often have the answers to operational challenges, and the 200 Asda staff who attended the shareholders’ event, “gave me some ideas, which we will implement”.

Clarke could be seen smiling and waving proudly to the Asda staff as they cheered at the event. Like Duke, he believes its culture makes the grocer different to its rivals. Duke said: “Our culture is who we are. It isn’t just words written on a wall at the home office, or stapled to the bulletin board in the backroom of a store. It makes us special. It sets us apart from the competition.”

A good return

Clarke describes the Netto acquisition (still to be approved by the Office of Fair Trading he says) as “a great page-turner”. In April this year, when Asda set out its five-year plan to become the clear number two in food, number one for non-food, and creating a world-class online business, “there was a bit of scepticism in the market and a few people questioned how that could happen”. He adds: “Now, after the acquisition, people have realised we are serious.”

Clarke says he championed the smaller supermarkets strategy since returning to Asda five years ago, and believes that the grocer will “get a good return from it”. “We were talking to Somerfield and that didn’t work out, and this one came along and we went for it. We’re not buying the Netto brand, we’re buying the property,” he adds.

Both Duke and McMillon talk about how the Netto acquisition fits in with the strategy for acquiring smaller stores. At the shareholders’ meeting Duke said that around the world “combination is the best” in terms of a strategy for larger and smaller stores.

McMillon did not rule out an acquisition in non-food, but Clarke added: “We have an organic plan to grow the number of Asda Living shops to 150. If an acquisition comes along, we’ll talk to the Walmart crew about whether it’s appropriate.”

The third string is EDLP, Clarke says: “We have been famous for price since the 1970s, but the message can get diluted. Reinforcing EDLP, together with our Price Guarantee, underpins that you don’t have to shop anywhere else.”

He admits: “Last year we became part of the crowd. Our price gap didn’t change but the volume of promotions didn’t make us clear about our price position and customers got confused.”

“When you’ve got other retailers advertising what they believe is their true basket price versus everybody else - which is smoke and mirrors - it takes a while for customers to see through it,” he goes on. “That’s where Price Guarantee is a good vehicle - it is all online and customers can check for themselves.”

McMillon describes the Price Guarantee as “the right tactic at the right time” and says it would “help bring momentum back to the business”.

Building relationships

According to Clarke, Asda is now carrying fewer promotions, but the level of activity is still “reasonably high”, because, he says, “we can’t be out of line if competitors drop the price of key items. We’re weaning ourselves off the promotional drug”.

Part of the confidence Clarke has in being able to continually invest in price stems from Walmart’s commitment to step up global sourcing.

He says: “One of the things I will spend more time on is how to leverage being part of a global business. We have not spent as much time as we could have done on leveraging Walmart’s scale in areas such as general merchandise and I will significantly build that relationship.”

He gives the example of Asda working with Walmart on a project for jeans, whereby together they are currently choosing a factory and design, which will become a global buy.

Clarke says he didn’t expect any “sudden rise in comparative growth” but is confident the grocer has a good set of plans. “It takes time to re-establish our price position,” he says.

Asda has been singled out as underperforming in the market, reporting its first fall in like-for-likes for four years in the first three months of the year, down 0.3%. Clarke argues that the big four grocers are “all broadly the same” as the whole market has slowed.

He says that Asda has not acquired enough space over the past few years compared with its rivals. However, he insists that, if that additional space is taken away, “you couldn’t get a paper card between anybody”.

He says Asda’s clothing brand, George, is “doing really well” while food is “OK”. “Ideally, you want all three cherries working well together, but at the moment food is the weakest, general merchandise is OK, and George is really good. We know we’ve got to get the food engine working efficiently but it’s great that George is doing well.”

Clarke believes that, once the Price Guarantee has settled in, “it will give us the chance to shout about other things we’re good at, as we’ll automatically be known as the price leader”.

He points out that EDLP is only one of the five promises set out in April, the others being quality, availability, newness and service, but “our brand heritage is price, and price has a greater level of importance, so we need to get that right first”.

He adds: “Asda needs to be known for value, not just price. And value is price, quality and service. Does that mean we’ll have Waitrose quality? Maybe our Extra Special range will have it, but the most important thing is that we offer real value.”

Clarke is part of creating Duke’s “next-generation Walmart”, and McMillon says he is confident Clarke will lead the business and drive through its five-year plan.

And what does Clarke himself want to be remembered for?

“In five years’ time, when people ask what has Andy Clarke and his team delivered, I want it to be further alignment with Walmart, driving better competitive pricing and a better value proposition.”

If he can achieve his vision, Clarke will make Duke even happier than the Walmart employee who left the event beaming after being hugged by Spanish heart throb Enrique Iglesias.