Global Chief to Lead Wal-Mart
Mike Duke Named CEO as World's Largest Retailer Steps Up Foreign Expansion

By Ylan Q. Mui
Washington Post Staff Writer
Saturday, November 22, 2008

Wal-Mart made the surprise announcement yesterday that Mike Duke, the head of its international division, will replace H. Lee Scott Jr. as chief executive of the world's largest retailer next year as its foreign business continues to grow rapidly in scale and importance.

Duke has led Wal-Mart's foreign operations since September 2005 and oversees operations in more than a dozen countries and global procurement, crucial experience as the Bentonville, Ark.-based retailer that began as a five-and-dime looks overseas to fuel its growth. Duke is also expected to continue Scott's initiative to transform Wal-Mart into a more sustainable business, and he helped lead a meeting last month with 1,000 vendors in China to announce new sourcing standards.

Scott, 59, will remain chairman of the executive committee of the board of directors and will have an advisory role at the company through 2011. Duke, 58, will take over the top job Feb. 1.

"I am looking forward to leading this great company," Duke said in a statement. "Wal-Mart is very well-positioned in today's economy, growing market share and returns, and is more relevant to its customers than ever."

Duke's name has been floated as a possible successor to Scott for several years. He ran Wal-Mart's domestic segment for about two-and-a-half years before moving to the international division. According to a filing with the Securities and Exchange Commission, Scott notified the company last week that he would retire in January, and the board elected Duke to take his place Thursday.

Several industry analysts said that the news was expected eventually, but they were surprised by the timing of the announcement, coming in the middle of the make-or-break holiday shopping season and the stock market's wild ride.

Wal-Mart spokesman David Tovar said the company's board of directors has had an "ongoing and rigorous" succession strategy to develop leaders internally and that the company's recent momentum will make the transition easier. In an internal memo to employees, Wal-Mart board chairman Rob Walton, son of the company's founder, said:

"I think Lee said it best when he told me, 'This is a great job, but you can't do it forever.' "

Wal-Mart also announced that the head of its U.S. stores, Eduardo Castro-Wright, 53, has been named vice chairman of the company, effective immediately. He will retain his current responsibilities and also take over global procurement.

Castro-Wright had also been floated as a possible successor to Scott. But J.P. Morgan analyst Charles Grom said that his skills are still needed in the domestic division and that his promotion could put him in line behind Duke.

For most of its history, Wal-Mart has relied on explosive domestic growth to fuel its record-breaking sales. But as the big-box behemoth saturated small towns and suburbs with its more than 4,000 stores, sales began to stagnate. Wal-Mart found itself the target of heavy criticism from unions that wanted to block it from entering urban areas in recent years. And it floundered in trying to mimic the success of rival Target in discretionary categories such as apparel and home.

Wal-Mart's performance has rebounded over the past year as its low-price message resonates with consumers during this economic downturn. But even when sales lagged at home, Wal-Mart continued to expand internationally. It opened its first foreign store in 1992 in Mexico under a joint-operating agreement and now operates in about a dozen countries in Latin America, Europe and Asia. It plans to enter India next year through another joint-operating venture.

"As a business choice it makes a lot of sense because [Duke] knows the international market," said Glenn Prickett, senior vice president at Conservation International, who recently attended the summit with Duke for Wal-Mart suppliers in China. "That's really where the future growth of the company is."

The international division is the fastest-growing segment of Wal-Mart's business. Sales have grown nearly 17 percent during the first three quarters of the year to $74 billion compared to the same period last year. The domestic business grew at less than half that rate at 7 percent, though it accounted for $184.3 billion in sales, not including its Sam's Club stores.

There have been road bumps along the way. Wal-Mart sold its operations in Germany and South Korea in 2006 when its stores failed to take off. The Japanese division, Seiyu, shut 20 stores and cut 350 jobs in September, and Wal-Mart is trying to lower prices to drive traffic as the country slips into recession. Critics have also accused it of squeezing its suppliers and providing lax oversight, particularly during last year's spate of toy recalls.

Duke's promotion "shows that the board believes that the future for Wal-Mart is overseas and not here at home, further demonstrating how seriously the company regards the challenges it will face to its business model in the years to come," said David Nassar, executive director of Wal-Mart Watch, a frequent critic funded by the Service Employees International Union.

Walton noted Duke's team-building ability and broad experience throughout the company in a statement released yesterday. He also said that Scott led the company "with humility and grace" and that "my dad would have been proud."

Joe Carideo, retail partner at executive search firm Battalia Winston Amrop, said he had attempted to recruit Duke from Wal-Mart several times to no avail. Duke joined Wal-Mart in 1995 as senior vice president of logistics and later moved to administration before heading the U.S. division. Carideo said that background in operations made him a logical choice as a successor for Scott, who also began his career at Wal-Mart in logistics 30 years ago.

"What drives the success at Wal-Mart is getting the goods into the store efficiently and effectively," Carideo said. "Merchandising is not what drives the success at Wal-Mart."

Duke received $975,000 in base pay last fiscal year, not including stock and other options. According to the SEC filing, he will also receive a performance-based restricted stock award that will vest in 2012.

Scott earned $1.4 million in base pay last year and will receive $1.1 million annual salary after he steps down to continue as an adviser and public representative of the company through Jan. 31, 2011.

Wal-Mart's stock closed yesterday at $52.92, up 4 percent or $2.26.