Perhaps it was inevitable. After the decades of expansion that turned Wal-Mart Stores into the world's largest retailer, the discounter's...
LITTLE ROCK, Ark. — Perhaps it was inevitable. After the decades of expansion that turned Wal-Mart Stores into the world’s largest retailer, the discounter’s sales growth is no longer phenomenal, and the culture of founder Sam Walton has started to change.
The resignation last Friday of a Wal-Mart director in an alleged expense scheme was one of a series of setbacks in recent months, but it was also a sign the guard is indeed changing.
Tom Coughlin was a 28-year Wal-Mart veteran who had led the discount and warehouse-stores divisions until late last year. He also was the retailer’s vice chairman.
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Coughlin’s departure from the board could bring some welcome change to the political structure inside Wal-Mart’s Bentonville, Ark., headquarters, said John Plummer, who runs a retail-executive-recruiting firm in Rowayton, Conn.
As older executives leave, some are being replaced by recruits from other companies.
“The old operations group at Wal-Mart is probably what caused a lot of the problems they are having now,” Plummer said, adding it “was very incentivized to keep costs as low as possible, which meant violations of … labor laws and good practices.”
Wal-Mart recently paid a fine to settle federal charges that underage workers operated dangerous machinery. It also agreed to pay $11 million to settle charges that its cleaning contractors used illegal immigrants.
In addition, it is appealing a judge’s decision to certify class-action status for up to 1.6 million female employees who claim they were victims of gender-based discrimination.
The company also is contending with the fact that sales, which once bounded higher at a double-digit rate, are leveling off.
In the year that ended in late January, sales from stores open at least a year, known as same-store sales, rose just 3.3 percent.
Burt Flickinger, managing director at Strategic Resources in New York, said same-store sales at Wal-Mart’s core discount-store division are shrinking when relatively new product lines like groceries and gasoline are excluded.
“That’s a real cause for concern,” Flickinger said.
Aggravating the situation is the company’s difficulty in making money in Asia and Europe, he said.
Analysts see the management changes at Wal-Mart as a healthy step.
“If a [corporate] culture remains static, loses ground, it loses its right to live,” said retail analyst Kurt Barnard, president of Barnard’s Retail Forecasting in Upper Montclair, N.J. “That is a reflection of the need to change.”
People brought up in founder Sam Walton’s way of running the company have been at the top since the founder left day-to-day operations in the 1980s.
Walton, who died in 1992, built the company from a small chain of discount stores in 1962 to the world’s largest company, as measured by sales.
David Glass was the first chief executive to follow Walton, and H. Lee Scott Jr. followed in 2000 after 20 years with Wal-Mart.
Under that line of succession, Wal-Mart’s stock has been mostly stuck in a trading range of between $50 and $60 a share for almost five years. In contrast, shares of competitor Target have almost doubled in value over that period.
Coughlin, whose mentor was Walton, was known for protecting and advancing the careers of long-time Wal-Mart managers, Flickinger said. But even before Coughlin’s departure, executives who cut their teeth outside of Wal-Mart were gaining power in the company.
Among them are Chief Financial Officer Tom Schoewe, who left Black and Decker in 2000. Mike Duke, chief executive of the Wal-Mart division, was at Federated Department Stores and May Department Stores for 23 years prior to going to Bentonville in 1995.
Chief human-resource officer Lawrence Jackson came to the company last year from Dollar General, where he was president and chief operating officer
Others have spent their entire careers with the company, such as Sam’s Club CEO Kevin Turner, who began as a cashier in 1985 in Ada, Okla., when he was in college.
“There is no question there are new people, new ideas. So long as they are on the straight and narrow, I think it is wholesome and healthy,” Barnard said.
In a filing with the Securities and Exchange Commission, Wal-Mart said a recent internal investigation had found “the alleged unauthorized use of corporate-owned gift cards and personal reimbursements that appear to have been obtained … through the reporting of false information on third-party invoices and company expense reports.”
Wal-Mart said in the filing that it asked Coughlin to step down because of a disagreement over the results of the investigation, which involves between $100,000 and $500,000.
Company spokeswoman Mona Williams said the company notified federal authorities as quickly as it could about the alleged expense scheme.
Coughlin did not return a telephone message left at his home. Bill Cromwell, a spokesman for U.S. Attorney Robert Balfe in Fort Smith, Ark., would not comment on the Wal-Mart case.