In a league of its own

Discount Store News, Oct, 1999

Wal-Mart is already the world's largest retailer by a large margin and eventually it will become the world's largest company.

It will be an amazing accomplishment considering the retailer's humble beginnings almost 40 years ago. Beyond that, the additional distinction doesn't grant any special privileges. If anything, the current challenges Wal-Mart faces will intensify and new ones will emerge.

Wal-Mart already effectively manages to operate nearly 4,000 stores of various sizes and formats throughout the world. It sells merchandise from an estimated 7,000 vendors who supply hundreds of thousands of skus. It has 1.1 million associates who must be communicated with in at least six foreign languages. The number of stores, vendors, skus, associates and languages will continue to increase as Wal-Mart grows.

However, those are all aspects of growth the company knows how to deal with, and in most instances it's a matter of increasing the scale of a technology system to handle additional sales information, adding another distribution center to ship the merchandise or hiring another 100,000 people.

As it becomes the world's largest company, Wal-Mart has to be concerned about the pressures on its people and the impact on business when vendors have difficulty accessing decision-makers.

"Our vendor partners would like more access to people in the organization," said Tom Coughlin, president and ceo of the Wal-Mart Stores division. "Dealing with the large numbers of people that we deal with and finding the time on a timely basis to address issues that they are concerned about is the challenge. We don't have anyone around here sitting on their hands, so I believe it is a matter of reinvigorating the commitment to listening to what the vendor community has to say, analyzing concerns and doing something about it."

Communicating with the vendor community and Wal-Mart's own associates is a bigger and bigger issue that Wal-Mart partially addresses with huge meetings held several time a year. The meetings are valuable because attendees are given a consistent view of Wal-Mart's goals and priorities. They are so large, however, that meaningful one-on-one conversations with senior executives are next to impossible. Just organizing the events is a huge challenge. A case in point is the June shareholders meeting. The 18,000 seat arena where it is held is filled to capacity every year. There is such strong interest among shareholders, associates, vendors and the media that a larger arena could easily be filled.

Associate enthusiasm runs high at these meetings, but Wal-Mart will increasingly face the challenge of maintaining the motivation of store associates. Especially when the pressures of the bottom line force store managers to maintain a constant vigil on the number of hours people work.

Vendor access and communications are issues Wal-Mart can control. Customers and their perceptions, the media and the investment community are realms where control is difficult if not impossible.

The media already uses Wal-Mart as a metaphor for anything that is big or intrusive. As the world's largest company it will only get worse. The media is also quick to report any incident of Wal-Mart being sued or where a community is opposed to a Wal-Mart store. These stories are often cast in a David versus Goliath manner with a bias against Wal-Mart because it is a giant corporation. Wal-Mart will be sued more in the future than it has been in the past, and each time a suit is reported, even if Wal-Mart is justified, it potentially tarnishes the company's image. As for community opposition, neighborhood groups are smarter than they used to be and know how to organize to defeat projects. Even communities that don't mind having a Wal-Mart know the company is quick to grant concessions rather than jeopardize a potential site.

The world's largest company will have an increasingly hard time convincing analysts it can still grow. Wal-Mart posted strong profit growth the past few years and most analysts have buy recommendations on the company. However, it just gets harder and harder to buy the growth story when Wal-Mart is already the biggest and it has to add $25 billion or more in volume each year. Complicating matters, Wal-Mart shares less information with analysts than in the past, and access to senior executives is limited mainly to one meeting held in the fall. Senior executives don't even field questions during the retailer's quarterly conference calls to discuss earnings.

Wal-Mart can't afford to be as open about its operations because of competitive concerns. Everyone wants to know what Wal-Mart is up to, which isn't a good thing for a company whose growth depends on international expansion. Sightings of Wal-Mart executives in foreign countries is enough to prompt speculation about when Wal-Mart will enter the market and who they might buy. It's driven prices up and is driving consolidation worldwide. Some analysts believe Wal-Mart paid too much to acquire U.K. supermarket operator Asda.