Duke era begins at Wal-Mart
BENTONVILLE, Ark. There is nothing quite like the appointment of a new chief executive officer at the world’s largest retailer to shift the focus of the retail industry, if only temporarily, away from a fast approaching and difficult holiday season.
Wal-Mart did just that Friday morning when it announced vice chairman Mike Duke would serve as only the fourth person in the company’s nearly 50-year history to serve as president and chief executive officer. He replaces Lee Scott who will step down as president and chief executive officer on Jan. 31, 2009, ending an often embattled nine-year run in which the company endured considerable criticism and unprecedented change.
“I am looking forward to leading this great company,” Duke said. “Wal-Mart is very well positioned in today’s economy, growing market share and returns, and is more relevant to its customers than ever. Our strategy is sound and our management team is extremely capable. I am confident we will continue to deliver value to our shareholders, increase opportunity for our over two million associates, and help our 180 million customers around the world save money and live better.”
“This is a big day for us and some of you might be wondering why we are making the change at this time,” Walton said in the e-mail. “I think Lee said it best when he told me, ‘This is a great job, but you can’t do it forever and at that point you have an obligation to find the right time for a transition.’” Walton continued, “We think the right time is now, a time of strength and momentum for our company. As you know, our customers are relying on us more than ever in the current economic environment and we are well-positioned to serve them now and in the future. Our management team is strong. Our strategy is sound and Mike (Duke) has been actively involved in developing and executing this strategy.”
Wal-Mart is on track to generate record sales of $400 billion and profits of roughly $13.6 billion this year while many other retailers are expected to report declining sales and profits amid a worldwide slowdown in consumer spending.
Duke assumes leadership of Wal-Mart at a time when the company has never been stronger and Scott deserves the credit for that. His tenure was marred early on by investors who were dissatisfied with a deteriorating financial performance, organized opponents who effectively called attention to the company’s every flaw and a stagnant stock price. It has only been in the last two years, following a radical transformation of the company’s senior leadership and strategies that an improved performance has begun to generate shareholder value.
Scott may be stepping down, but he won’t be a stranger at Wal-Mart’s home office. He will continue to serve as a board member and as chairman of board’s executive committee. He also will be employed by the company through Jan. 31, 2011.
In conjunction with Duke’s appointment, Wal-Mart elevated U.S. stores division president and chief executive officer Eduardo Castro-Wright to the role of vice chairman and gave him added responsibility for global procurement.
“Eduardo Castro-Wright has a history of delivering results for our company,” Walton said. “As president of Walmart U.S., Eduardo has a vision for our brand, and has built a strong team of senior leaders who have led the business to its current market-leading performance. We believe his international experience will also help drive success in our global procurement organization.”
These recent changes are certain to set off a series of additional personnel moves among other senior executives with the most significant move coming in the international area. Duke was previously responsible for Wal-Mart’s $100 billion international division and his successor will be named before the end of the fiscal year.
Although only 59, Scott’s retirement announcement can hardly be viewed as a surprise given that he has telegraphed the move on several occasions and openly addressed the issue of retirement at the company’s 2006 shareholders meeting. In the spring of that year, Scott took an unusual one month vacation and left then vice chairman Mike Duke and former vice chairman John Menzer in change. News of the situation prompted retirement speculation that he sought to quell before shareholders.
“I hope to be here for a good long run,” Scott said in June 2006. “That was my deal with Walton. He would give me a month and I would give him several years.”
Two and half years to be more precise.
NCPA moves to encourage more retailers to cease carrying tobacco products
ALEXANDRIA, Va. A professional organization representing community pharmacists is urging retail pharmacies not to sell tobacco products.
The National Community Pharmacists Association’s council has approved a resolution asking members to refrain from selling the products, in recognition of the American Cancer Society’s Great American Smokeout, on Thursday.
“Community pharmacies are renowned for helping their patients maintain good health, and the use of tobacco products is an unhealthy and potentially deadly habit,” NCPA chief executive and executive vice president Bruce Roberts said in a statement Wednesday. “While NCPA recognizes the need for these small business pharmacy owners to make autonomous decisions regarding the stocking of tobacco products, as healthcare providers in their communities, we encourage them to consider offering healthier alternatives to their patients.”
San Francisco’s board of supervisors approved a citywide ban on tobacco sales at retail pharmacies earlier this year, though Walgreens has challenged the ban in court. Boston is considering a similar ban.
Fitch predicts sales down for holiday season
NEW YORK Fitch Ratings on Wednesday issued a pretty dismal outlook for the 2008 holiday season, suggesting that this year “could be the weakest season over the past two decades.”
The outlook is not as bad for drug retailers, as compared to specialty apparel and electronic retailers, however. The drug channel is expected to benefit from a mainly non-discretionary merchandise offering. “Given the significant pace of merger and acquisition activity over the past few years, both CVS Caremark and Rite Aid will continue to focus on integrating acquired units and leveraging their increased scale and breadth of services,” the firm said.
“There is a lack of large scale acquisition opportunities in the drug retail sector and therefore share gains will increasingly depend on generating above average organic growth, store closings or share losses by weaker independents and regional chains, and smaller market fill-in acquisitions and prescription file buys. Fitch expects drug retailers to further develop their multi-channel distribution strategies in areas such as pharmacy benefit management and specialty pharmacy where merger and acquisition activity could continue,” the company stated.
In addition, enhanced service offerings such as additional in-store clinics will help these retailers win share from other healthcare venues, the firm noted. “CVS Caremark is already well-positioned with leading market shares in all prescription distribution channels … and Fitch expects CVS Caremark to continue to drive share gains and leverage its integrated platform, generating incremental revenue longer term. However, industry participants could experience slowing top line growth if prescription volumes decline. In addition, profit margins could be pressured by weakness in front-end categories and potential changes in pharmacy reimbursement rates although an offset will be the growth in higher margin generics.”
Overall, real retail sales turned negative in the back-to-school period for the first time since 2001 and are expected to remain negative for the balance of 2008. This is particularly significant for the department stores as well as specialty apparel and electronic retailers as the fourth quarter represents about 30 percent of sales and up to 50 percent or more of operating earnings for these companies. Promotional activity will be substantial and broad based to drive customer traffic and clear excess inventory.
For 2009, Fitch expects that these trends will continue as consumers curtail discretionary spending and look to maximize value. Comparable store sales growth for operators selling clothing, home related goods, and other discretionary categories is expected to continue to be negative while those companies that have built a strong value perception and have strong private and exclusive brand offerings will outperform their peers. While the weak sales will be geographically broad based, sales pressure will be more acute in those markets most impacted by housing and job-related weakness. Similar to the 2008 holiday season, promotional activity is likely to be prevalent as retailers look to stimulate demand and clear overstocks.
The growth in personal consumption expenditures is projected to be down 1.6 percent in 2009 and the rate of growth is expected to remain below trend into 2010.
“Value oriented offerings will be the focal point as retailers try to capture more share of the consumer’s shrinking wallet,” Fitch said. Key beneficiaries of this shift in consumer behavior will be the discount formats, particularly those selling food such as Walmart and Costco.