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Wal-Mart's secret of success amid slump

June 08, 2009 11:32 IST

If you ever wondered what keeps the world's biggest company chugging even in times of a downturn, you should make a visit to Wal-Mart's annual general meeting at Fayetteville in Northwest Arkansas, US.

Over 16,000 shareholders and associates (employees) cheered as top executives of the company briefed them on Wal-Mart's businesses in different markets.

It was so much unlike a shareholders' meeting. The Budwalton Arena at the University of Arkansas, Fayetteville, which can seat close to 18,000 people, resembled a rock concert in an indoor stadium with associates cheering like crazy fans. There were performances and appearances by the likes of Paulina Rubio, Ben Stiller, Michael Jordan and Kris Allen in between speeches by senior executives.

The closest parallels one could draw would be the annual general meetings of Reliance Industries in the 1980s, which used to be held in stadiums. The only difference was that the Wal-Mart meeting was characterised by the immense energy and passion brought into by over 16,000 associates, who were shareholders as well. "I have not seen anything like this," said a US journalist, covering the event.

The annual shareholders meet at Fayetteville, 25 miles from the retailer's headquarters at Bentonville, is a three-day affair. The meet was preceded by an international associate conference, an event to drive home Wal-Mart's culture and mission - saving money for people so that they can live better - and showcase its diversity and international success.

The event, held on Tuesday, was attended by over 1,000 international associates, representing stores in markets like Chile, Argentina, Brazil, Central America, Mexico, the United Kingdom, Japan, China and India.

Despite the downturn, Wal-Mart has done well in many of these markets, outperforming its rivals. With close to 4,000 stores, Wal-Mart International's sales outside the US has grown 16.7 per cent to $100 billion, while its operating income has risen to $5 billion. Wal-Mart's sales have grown 7.2 per cent in the last five years to $401 billion.

The company's newly-appointed president & CEO, Mike Duke, said, "This is not the time to slow down. This is not the time to take comfort in our success. This is Wal-Mart's time to look at the future and seize the opportunity to truly lead around the world."

Shares of the Bentonville, Arkansas-based company, however, have trailed the performance of other retailers. Wal-Mart shares have slumped 8.9 per cent in 2009 while Target Corp, the second-largest US discount retailer, has gained 17 per cent this year, and Kohl's Corp has climbed 27 per cent.

While the company's shares haven't matched rivals, its sales and profit have been better. According to Bloomberg, Wal-Mart reported last month that first-quarter net income and sales were little changed from the year-earlier period.

Minneapolis-based Target and Kohl's, based in Menomonee Falls, Wisconsin, reported profit declines of 13 per cent and 10 per cent, respectively. Sales at stores open at least a year rose 3.7 per cent at Wal-Mart in the first quarter, while they declined 3.7 per cent at Target and 4.2 per cent at Kohl's.

Fund managers say that Wal-Mart tends to do well in times of recession as consumers try to save more. It would be interesting to see if it can continue to outperform its peers once the global economy turns around."The challenge for the management team is to persuade investors that Wal-Mart is not simply a recessionary play, and that there's opportunity for growth beyond the trade-down story," Walter Todd, a fund manager at Greenwood Capital told Bloomberg on Friday, who helps manage $650 million, including 108,000 Wal-Mart shares. "Given how the stock has performed this year, people aren't convinced at this point," he said.

Ranju Sarkar in Fayetteville
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