KEYNOTE: H. LEE SCOTT JR.
Byline: David Moin
Wal-Mart is turning up the volume again.
H. Lee Scott Jr., president and chief executive officer of Wal-Mart Stores and a rising star in the company, disclosed the chain’s latest sales forecast — and it’s a doozy. The world’s largest retailer, he said, will post at least $132 billion in sales in 1998, a 17 percent gain over last year’s $113 billion.
During his keynote address Monday, Scott further impressed his audience with other Godzilla-sized statistics from the Bentonville, Ark.-based discount behemoth, disclosing that the chain gets 90 million visitors each week into its stores, and that 95 percent of the population that lives within a 15-mile radius of a Wal-Mart store will shop there.
Moreover, when Wal-Mart focuses on “exploding” a key item, Scott said, “You cannot imagine the volume we do.”
Wal-Mart’s phenomenal growth, with no end in sight, was a steady theme heard during speeches and cocktail hours at the CEO Summit, and Scott seemed most aware of it, tailoring his presentation to emphasize that size doesn’t mean the world to Wal-Mart.
Industry analysts say eclipsing $200 billion in sales is well within Wal-Mart’s reach, particularly with overseas opportunities barely tapped. But Scott actually played down the company’s enormity, focusing on its core merchandising strategies and corporate culture and its strategy for providing value. He stressed the importance of relationships between store associates, customers and suppliers in building the Wal-Mart empire. And he described how Wal-Mart insiders perceive their business.
“We don’t consider us to be this huge goliath,” Scott contended. “I think it is just our heritage that we don’t think of ourselves as a big company.”
While no retailer comes close in size to Wal-Mart or manages growth as effectively (Wal-Mart has been driving sales up but taking inventory levels down recently), Scott suggested that raising the bar for volume gains isn’t the company’s paramount concern. What he and other Wal-Mart executives are really focused on is countering the rising strategies of some formidable competitors.
“We’re most concerned by the program at Kmart, the [proprietary] Martha Stewart brand, the taste level at Target and the tremendous growth at Dollar General. That’s what concerns us,” Scott said.
This year, Kmart has appeared to have turned a corner by showing stronger sales, most noticeably in apparel, after several disappointing quarters. The performance has been boosted by improvements in its in-house Jaclyn Smith apparel collection, strength in the Sesame Street children’s wear collection, and the revival and ongoing expansion of the Martha Stewart home collection. Meanwhile, Dollar General, another discounter, has been the darling of Wall Street of late, and Target is revving up its expansion on the Eastern seaboard, buoyed by its strong apparel assortments. Within the discount sector, Target is considered the most fashionable.
Wal-Mart is considered the cheapest, in terms of selling apparel. It excels when it comes to offering lower price points than Kmart or Target.
According to Scott, there’s a major thrust on what he called “VPIs,” or volume-producing items.
“What we sell most of is at opening price points,” Scott said, adding, “It really is that young family, who has to have the ability to buy at true value,” to whom Wal-Mart seeks to cater heavily.
Vendors have noted that over the last year, Wal-Mart’s women’s assortments have improved significantly, with less cluttered presentations and more coordinated displays of related items, such as tops and bottoms.
If the merchandise continues to improve, Scott has a good chance to be the next ceo of Wal-Mart, eventually succeeding David Glass. Observers say he’s already considered a candidate, due to his reputation for being a good communicator, being both hands-on and strategic, and having a versatile skill set. Other rumored candidates include Bob L. Martin, president of Wal-Mart’s international division, and Thomas M. Coughlin, chief operating officer of Wal-Mart Stores division.
Scott currently oversees merchandising and operations for more than 2,300 Wal-Mart stores, but he rose through the ranks in transportation and logistics jobs, at one time overseeing Wal-Mart’s army of 3,700 truckers. He joined the company in 1979 as assistant director of transportation and, after a series of promotions, became executive vice president of logistics and a member of Wal-Mart’s executive committee in 1993. He has been instrumental in developing the chain’s state-of-the-art distribution network, and in his current position, attained this year, he has spearheaded efforts to take $2 billion in excess inventory out of the Wal-Mart pipeline.
In his presentation, Scott said there are four cornerstones for creating value at Wal-Mart. First, “You have to have low prices for our channel [of distribution]. Everyday-low-price is really the cornerstone,” he noted, which “really has to be preceded by lower expenses.” And Wal-Mart has developed a somewhat notorious reputation for low expenses, with no other retailer in its league, particularly when it comes to travel expenses. Meal allowances on road trips are fixed at $15 a day for three meals, and it’s not uncommon for two staffers to share a hotel room, Scott mentioned.
The second cornerstone is breadth of assortment, he pointed out. “We believe it is critical that we be category dominant,” Scott said, adding that the foundation for Wal-Mart’s dominance came through building strong and meaningful assortments in such categories as health and beauty aids and fishing gear.
However, while key items are a primary focus, the company tends to regard buyers as “business managers, rather than item selectors,” he said. “The first thing you have to do is go out and get a quality vendor,” he told his audience of Seventh Avenue executives, retailers and consultants. “In every category we dominate in, there is a strong supplier. It is your responsibility to help move us forward.”
The third cornerstone is being in-stock on merchandise that Wal-Mart customers want the most. “That is what we do the poorest,” admitted Scott, citing periodic product dearths on some very basic items, such as socks, T-shirts, even Tide detergent. “It is unbelievable,” Scott stated, “that the consumer is more motivated to buy than we are to sell.”
The fourth cornerstone Scott cited is associates who care about customers and the communities they serve, a policy started by Sam Walton, the legendary founder of Wal-Mart.
“This may be the mystery and mystique of Wal-Mart,” Scott said.
