Wal-Mart Moving Upscale

A throng of shareholders and associates attends Wal-Mart's annual meeting in Fayetteville, Ark.
A throng of shareholders and associates attends Wal-Mart's annual meeting in Fayetteville, Ark. (By April L. Brown -- Associated Press)
By Michael Barbaro
Washington Post Staff Writer
Saturday, June 4, 2005

FAYETTEVILLE, Ark., June 3 -- The U.S. division of Wal-Mart Stores Inc., which has served as the engine behind the global chain's phenomenal growth, has hit a rough patch, with customer service lagging, stores appearing unclean and merchandise failing to appeal to higher-income shoppers, the company's top executives said Friday.

"We aren't where we need to be . . . especially in the U.S. Wal-Mart stores," chief executive H. Lee Scott Jr. said during the company's shareholder meeting at the University of Arkansas campus here, near the corporate headquarters in Bentonville.

With Wal-Mart's stock price down 16 percent for the past 12 months and with sales growth stagnating at stores open more than a year, top executives outlined a series of wide-ranging changes in how the company's 3,700 U.S. stores should operate.

The goal: to close the gap with discount competitors such as Target Corp., whose flashier merchandise and stylish stores are luring bigger spenders.

Beginning this year, Wal-Mart will carry upscale merchandise, such as 550-thread-count Egyptian cotton sheets, 42-inch plasma high-definition televisions and cashmere cardigan sweaters, to shake its image as a purveyor of cheap, unfashionable goods.

Fake hardwood floors are being installed in the apparel departments of new stores to evoke the inside of a boutique. In place of a hodgepodge of seemingly random product colors, a handful of carefully chosen shades -- baby blue and lime for the spring season -- will now dominate clothing and housewares to send a clear message about what's trendy.

Wal-Mart has also opened a new design office in New York so buyers can be closer to major fashion houses and the edgiest retailers.

Until now, Wal-Mart "may not have focused enough on the customer willing to pay a little more for higher quality," said Executive Vice President Mike Duke, who runs the chain's discount store division. The goal now is to "meet the needs of every American," he said.

Wal-Mart's market dominance is hardly threatened. It is by far the No. 1 retailer in the country, with $10 billion in profit last year, and plans to open an average of a store a day. But by one key measure, performance is slipping: Same-store sales grew only 2.9 percent last year, compared with more than 5 percent in 2001.

Duke said the company is concerned about "inconsistencies" in customer service -- long checkout lines, sold-out products and dirty store restrooms -- that can drive consumers away.

Though executives did not name any competitors, it is clear whom they are worried about. Minneapolis-based Target operates half as many stores as Wal-Mart in the United States. But its mix of trendy domestic goods and clothes has attracted far more affluent consumers. While Wal-Mart's stock price is in a slide, Target's jumped 19 percent over the past 12 months.

During Wal-Mart's shareholder meeting, the company fended off eight shareholder proposals, including one introduced by the feminist leader Martha Burk, who led the high-profile campaign to end all-male membership at the Augusta National Golf Club last year.

The proposal from Burk, chairwoman of the National Council of Women's Organizations, would have required Wal-Mart to disclose stock option distribution by race and sex. "Wal-Mart has the opportunity to break new ground in shareholder information," she said in a speech that drew sustained applause.

But the proposal, and seven others from shareholders, did not pass, according to Wal-Mart Chairman Rob Walton, the son of Wal-Mart founder Sam Walton.

A parade of Wal-Mart executives acknowledged Wal-Mart's public relations problems, including a pending class-action lawsuit alleging the chain discriminated against female employees, and Wal-Mart's decision to settle an investigation into the use of janitorial contractors who employed illegal immigrants.

Scott said Wal-Mart has made mistakes and warned employees that they are under intense scrutiny.

"We're the focus of one of the most organized, most sophisticated, most expensive corporate campaigns ever launched against a single company," he said, referring to a coalition of unions and activists. "This means we will continue to be judged by a higher standard."

© 2005 The Washington Post Company