With the selection of Mike Duke as president and chief executive officer of Wal-Mart Stores Inc., H. Lee Scott hands off to a confidante with a strong international résumé as the world’s largest retailer thunders ahead and pursues global growth.
Duke, 58, an industrial engineer by training, brings to the job three years of experience as the ceo of the $100 billion Wal-Mart International, whose 3,000 stores in 14 countries are expected to propel the company’s expansion for the next decade. He will take over for Scott, 59, on Feb. 1. Duke’s successor at Wal-Mart International will be named by January.
“A lot of people in the investment community were hoping [Duke] would become the next ceo,” said Joseph Feldman, retail analyst with Telsey Advisory Group. “Given that he’s about the same age as Lee Scott, lots of people thought it was more likely that [head of Wal-Mart U.S.] Eduardo Castro-Wright would become the next ceo. I’m actually quite pleased. It’s a good thing for Wal-Mart and a good thing for Mike Duke.”
Wall Street seemed to agree. Wal-Mart shares were up 4.46 percent on Friday, closing at $52.92.
“He will be the first ceo that’s really been in the trenches internationally,” said John Lawrence, managing director of equity research for Morgan Keegan & Co.
Castro-Wright, 53, was promoted to vice chairman and given responsibility for global procurement in addition to running U.S. operations. Wal-Mart lags Target in global procurement, a strategy of increasing profits by buying directly from factories.
Castro-Wright generated tremendous returns steering Wal-Mart de Mexico and is credited for reducing labor costs and improving the look of U.S. stores, he also is young enough that he could ascend to ceo after Duke, several analysts said.
Scott will stay on Wal-Mart’s board, which Duke also will join, and advise the company through 2011. The ceo steps down on a high note after nine years at the helm, regarded as a leader who made Wal-Mart a global company while gracefully handling an unprecedented level of scrutiny.
Duke spent 23 years atFederated Department Stores and May Department Stores Co. before joining Wal-Mart in 1995 in U.S. logistics, the same department that Scott used as a launching pad. He is the $375 billion retailer’s fourth ceo since it was founded in 1962 by Sam Walton, who died in 1992.
The timing of the announcement of Duke’s selection Friday morning was something of a surprise because it came during the holiday shopping season. But Scott has succeeded in turning around the company and apparently wanted to retire from a position of strength.
Even after initial stumbles in apparel, such as the trendy George line, Wal-Mart appears to have found its footing in the sector.
Scott is “handing off Wal-Mart when the management team and company are operating extremely strong,” said Citigroup retail analyst Deborah Weinswig in a research note.
After a five-year malaise, the Bentonville, Ark.-based retailer has an enviable balance sheet and market proposition — low prices and value — that’s ideal for a prolonged economic downturn. In recent quarters, Wal-Mart has outpaced Target Stores Inc., which this month reported its fourth consecutive quarterly decline, posting a 23.8 percent drop in third-quarter profit to $369 million, or 49 cents a diluted share, from $483 million, or 56 cents, a year ago. In contrast, Wal-Mart this month reported a 9.8 percent quarterly gain in net income to $3.14 billion, or 80 cents a diluted share, from $2.86 billion, or 70 cents, a year ago.
“There are very few winners in retail right now and Wal-Mart is certainly one of them,” said Moody’s Investors Service senior analyst Charles O’Shea. “They have the trifecta — Sam’s Club, Supercenters and discount stores — operating well in the U.S. right now.”
The leadership of Wal-Mart also comes with challenges. The retailer’s Japanese flagship, Seiyu, is still struggling, and Wal-Mart also needs to find the right balance between investing in remodeling and expansion in the U.S.
But Scott, who sometimes complained he spent most of his time working on Wal-Mart’s image, has deflated the company’s public relations problems, once its biggest weakness
He has positioned Wal-Mart as an international leader in energy efficiency and waste reduction, while winning praise in the U.S. for efforts to reduce health care costs through $4 prescriptions and store health clinics. The company also scored points for Hurricane Katrina disaster relief efforts.
While Scott is dryly funny and a natural speaker, Duke is less overtly charismatic, but well respected. He speaks in a quiet drawl and has a lisp. He has worked in logistics and distribution, U.S. store operations and international operations.
“He’s one of the most well-rounded executives they have,” said Lawrence of Morgan Keegan & Co. “Having seen the business from the department store side earlier in his career, I think he’s been a capable administrator who pays attention to details and shows enormous respect for customers, employees and vendors.”
Neither Scott nor Duke was available for comment, the company said.
Harvard Business School professor Richard Tedlow said as long as Duke sticks to Walton’s fundamental thesis on price, the company can continue to make gains.
“People wondered if Wal-Mart could continue after Sam Walton,” he said. “If this company proves anything, it is that low prices are a tremendous selling point. Full stop. If they can stick to that,” the personality of the ceo doesn’t matter as much.
This fall, speaking at the company’s analyst meeting, Duke outlined future goals for Wal-Mart International, including building smaller and more profitable stores in China and Canada, and developing a cash-and-carry format in Brazil.
Duke stepped up expansion in China, shuttered unprofitable German and South Korean operations, oversaw a series of small acquisitions in South America and helped ink a deal to open cash-and-carry stores in India.
“As soon as Mike got to International, they got out of Germany and they got out of South Korea,” said Lawrence. “Those decisions were made on his watch and they were the right ones. He will be the first ceo that’s really been in the trenches internationally.”
Duke said he was “open to the idea of exploring merger and acquisition opportunities in Japan.”
Duke’s selection “occurs at a time of strength and momentum for Wal-Mart,” said Rob Walton, chairman of Wal-Mart’s board. “We are confident that the strategy we have in place is the right one for future success, and Mike has been actively involved in developing and executing this strategy.”
In terms of Duke’s successor internationally, Telsey Group’s Feldman speculated that Doug McMillon, ceo of Sam’s Club; Craig Herkert, president and ceo, international division, The Americas, or Vicente Trius, president and ceo of Wal-Mart Asia are all candidates to lead Wal-Mart International.
Duke and wife, Susan, have two daughters and a son, and grandchildren. They live in Rogers, Ark., in the same gated housing development as Scott and his family and have supported the campaign to expand the town’s library.
“Wal-Mart is very well positioned in today’s economy, growing market share and returns, and is more relevant to its customers than ever,” Duke said in a statement.
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