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Scott Grades Wal-Mart: Only a Six Out of Ten

LAS VEGAS — On a scale of one to 10, Wal-Mart’s own chief executive officer rates his company at about a six.That seems surprising, given the firm’s incredible track record, including last quarter’s 19.7 percent increase in net...

LAS VEGAS — On a scale of one to 10, Wal-Mart’s own chief executive officer rates his company at about a six.That seems surprising, given the firm’s incredible track record, including last quarter’s 19.7 percent increase in net income. But H. Lee Scott Jr., president and ceo of Wal-Mart Stores Inc., was for real when he said: “If you consider the workers inside this company, and if we could accelerate our improvement, we could really be a successful company some day. I mean that.”

In addressing a crowd of 5,500 at the International Council of Shopping Centers luncheon Monday, Scott was hardly condemning his organization. He just sees the world’s largest company as having not nearly reached its potential. Among the ways the company will improve will be through continued top-line sales growth, comp-store increases, new stores and acquisitions. “We are going to increase sales — period,” promised Scott.

He cited human resources as a priority for reviews and staff development courses. There will also be a “cross pollination” program giving executives different assignments and experiences over time, from logistics to merchandising to operations — much as he experienced in his own career to prepare for the top slot.

Scott also suggested a sharper focus on asset utilization, including in-store leasing and leasing properties vacated or not used by Wal-Mart, which he referred to as “outlots.”One of those outlots was recently leased to a Krispy Kreme. Scott said he never heard of Krispy Kreme until the doughnut chain took the space. It was unclear, once again during his presentation, whether this revelation was a joke or for real.

He said Wal-Mart would strive for increased profits targeting a 15 percent return each year. “That’s where we are focused.”

Scott said Wal-Mart will increase square footage this year domestically by 30 million square feet and internationally by 10 million square feet. In Mexico, Wal-Mart has investment opportunity, being in a market that’s “fast growing.” The company has 563 stores there.

On Wal-Mart’s entry into Japan through a minority investment recently in The Seiyu Ltd., Scott said: “We’re very excited about the opportunities.”

He also said the acquisition of Asda in the U.K. has been “very successful.”

In addition, Scott admitted that in Germany, where Wal-Mart’s business has been difficult, the company would’ve done better if it took the time to learn the market “before we gave direction.”

Scott, however, downplayed the expansion theme. “We can’t think of a customer who gets up in the morning and says they want to go to Wal-Mart and shop because it is the largest retailer in the world.”

It’s the corporate culture, rather than its gargantuan proportions, that keeps the company on track, he said. The company’s $218 billion volume “is not who we are,” Scott insisted. “What is meaningful is three basic beliefs: service to customers, respect for the individual and striving for excellence.” Instead, what many other companies emphasize are the needs of the ceo or maximum profitability in the short term, Scott suggested.In those scenarios, the customer ends up in last place, he said. “The customer is the boss.”

Providing proper service entails a broad assortment of merchandise, everyday low prices and doing things differently from the competition. “Sam Walton [Wal-Mart’s founder] saw a different model and a different way to do things.”

Scott also tried to deflate the notion that Wal-Mart beats up on suppliers. “I believe we need suppliers more than they need us…” he said, “the last thing we want is for a supplier to choose sides against us.”

He recounted a story about a 26-year-old Wal-Mart buyer who informed a 55-year-old supplier: “‘Either give us this price or we won’t do business with you.’ That’s not how we treat people.”