NEW YORK — Wal-Mart Stores Inc., the world’s largest retailer, unexpectedly announced Friday that its chief executive will retire in February and be replaced by the head of its international division.
The surprise change in leadership right before the crucial holiday season comes as Wal-Mart has roared back to success as people looking for bargains shop more at discounters. Still, the company faces hurdles ahead amid slowing growth in the U.S., and analysts say the decision to tap an international executive serves as a testament that the company sees its future growth oversees.
Bentonville, Ark.-based Wal-Mart said Mike Duke, 58, vice chairman of its international division, will take the reins from Lee Scott, 59, effective Feb. 1. Duke also becomes a member of the board of directors immediately.
Scott, who joined Wal-Mart in 1979 and became president and CEO in 2000, will continue as chairman of the executive committee of the board until January 2011, according to Wal-Mart spokesman Dave Tovar. He will also serve as an adviser to Duke until 2011.
During his tenure, Scott faced increasing scrutiny particularly from union-backed groups over issues from environmental concerns to wages and health care, which critics say have been too skimpy. The negative publicity had depressed the company’s stock price for two and a half years and made the company the poster child for bad corporate behavior.
But Wal-Mart’s overhaul of its stores and merchandise and its re-emphasis on low prices came together at a time when the economy began to turn sour last year. Since September 2007, Wal-Mart’s shares have made a remarkable comeback and its image has improved as the company, under Lee’s leadership, implemented environmental sustainability efforts, a discount drug program for customers and other initiatives.
“The absence of (Scott’s) steady hand, leadership, and political clout will be a minus for the company as his strategic decisions ultimately brought the company back to its roots and raised its public relations profile,” wrote Adrianne Shapira, a retail analyst at Goldman Sachs in a note released Friday. But she praised Duke’s abilities, noting that Wal-Mart’s strong fundamentals should ensure a smooth leadership transition as Duke inherits a company in “its sweet spot.”
Even in recent weeks, the stock has held up as most company’s shares have plunged. Last week, the retailer said third-quarter profit rose 10 percent as shoppers snapped up early Christmas promotions.
Tovar said the decision to name Duke was part of an “ongoing rigorous succession planning process.”
“We think the right time is now, a time of strength and momentum for the company,” Tovar told The Associated Press. “Our strategy is sound, and Mike has been integrally involved in developing and executing the strategy.”
He added, “with all of this in mind, Lee decided the time was right for him to retire and approached the board about doing so.”
Wal-Mart shares were flat at $50.66 as investors considered the news.
Some analysts found the timing puzzling, while others said the change may be necessary to put a new face on the company to deal with a new U.S. government.
“The thing is, Wal-Mart is doing well, so why change now, especially as we head into a long recession?” said Gerard Roche, senior chairman of executive recruiter Heidrick & Struggles International. “We are facing a critical holiday season when maximum leadership is called for.”
David Nassar, director of the union-backed group Wal-Mart Watch — which has been pushing for Wal-Mart to make changes to its business practices — said he did not think the change could be divorced from the broader political backdrop.
Wal-Mart faces some challenges ahead with the administration of President-elect Barack Obama, who has pushed for the passage of the Free Choice Act, legislation that makes it easier to unionize workers. Scott told investors in October that he believes unionization could harm corporate America’s competitiveness, but had said that he was looking forward to working with a new president and Congress, regardless of party, to find solutions to big economic challenges.
“Mike Duke as the new chief executive officer must be viewed in the context of the recent election,” Nassar said. “It represents an opportunity for Wal-Mart to change from the low-wage, low-benefit business model to one that will be more appealing to an Obama administration.”
More importantly, the change is also a testament to the importance of Wal-Mart’s international operations as “chief driver” of future growth, wrote Shapira.
The international business is its fastest-growing division, and profit rose 11 percent during the quarter, while U.S. profit rose 7 percent. Last month, the company announced that it’s shifting more of its focus over the next five years away from mature markets and to emerging markets like Brazil and India to drive sales.
Duke, who joined the company in 1995 and has served in posts including president and chief executive of the Wal-Mart Stores division in the U.S., “understands retail and appreciates the complex global environment in which we operate,” said Rob Walton, Wal-Mart’s chairman.
Before joining Wal-Mart, Duke was an executive at Federated Department Stores and May Department Stores, which are now known as Macy’s Inc., for 23 years.
Wal-Mart also announced that Eduardo Castro-Wright, 53, was promoted to vice chairman, and cited his international experience. He will take over the company’s global procurement operation, adding to his current titles of president and chief executive of Walmart U.S.
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