umpy customers, long lines at the register: These are just some of the challenges facing Wal-Mart Stores Inc. (WMT)’s new U.S. chief.Greg Foran, who takes charge Aug. 9, inherits a chain wedded to an outdated big-box model, struggling to increase sales in its stores and online, and losing customers because it can’t keep stores adequately stocked. The sluggish U.S. performance contributed to lower-than-projected sales and profit in the quarter that ended April 30. Wal-Mart’s profit forecast for the current quarter also came in lower than analysts’ estimates.
By naming Foran, a 53-year-old New Zealander who previously ran the chain’s Asia operations and has worked at Wal-Mart only four years, Chief Executive Officer Doug McMillon is betting a relative newcomer can revive a company losing relevance in a world increasingly dominated by Amazon.com Inc.
Foran’s promotion is “an acknowledgement of needing fresh thinking,” said Bryan Gildenberg, an analyst at Kantar Retail in Boston. “There are some short-term execution issues that McMillon is trying desperately to fix.”
Foran comes to the job with more than 30 years of retail experience in operations, merchandising and marketing. He previously headed Woolworths Ltd. (WOW)’s supermarket division and held other senior roles at the Sydney-based company, including general manager of the Big W chain of discount stores.
He joined Wal-Mart in 2011 and became head of the China business in 2012. Foran was tapped for the Asia CEO job after revamping operations, pricing and product assortment in the Chinese stores. Wal-Mart said yesterday it will announce its new Asia chief at a later date.
David Tovar, a Wal-Mart spokesman, said executives throughout the company have been impressed with Foran, and that’s why he was promoted in Asia shortly before being named to the top U.S. position.
Operations Experience
“Foran has a lot of experience on the operations side,” Gildenberg said. “He had a lot of focus on store-level experience and improvement. He spent a lot of time in stores and with store management. He’s an operator at heart.”
Foran has much to fix. With Wal-Mart’s low-income customers still living from paycheck to paycheck, the company hasn’t posted positive same-store sales for the past five quarters, according to data compiled by Bloomberg. A reduction in food stamp payments has also weighed on Wal-Mart sales. The shares have fallen 3 percent this year, compared with a 7.6 percent gain for the Standard & Poor’s 500 Index.
“It’s not like U.S. operations are lighting the world on fire,” said Brian Yarbrough, an analyst at Edward Jones & Co. They’ve “obviously struggled.”
Self-Inflicted Stumbles
While Wal-Mart faces increasing competition from a host of players, including Amazon and the dollar stores, some of its stumbles have been self-inflicted. Last year, Bloomberg News reported that many items were not being replenished, leaving some shelves bare. Hundreds of e-mails poured in from once-loyal customers complaining they could no longer find what they were looking for and so were shopping elsewhere.
In March, Wal-Mart executives said at a company meeting that store shelves need to be better stocked and that resolving the matter could be a $3 billion opportunity. They said improving “in-stocks” -- a measure of how much merchandise is available for shoppers to buy -- was a top focus for Wal-Mart.
The situation hasn’t improved, according to a June 20 report from Cleveland Research. The availability of products on shelves “actually seems worse year-to-date,” the report said.
The merchandise has been piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves, according to interviews with store workers.
Pared Workforce
Wal-Mart has pared its domestic workforce in recent years, putting a bigger load on remaining employees. U.S. staff at the main Wal-Mart chain and Sam’s Club warehouse chains fell by about 20,000 between 2008 and January of this year, according to a March filing. The company has about 1.4 million workers nationwide. Over that same period, it has added more than 650 U.S. Wal-Mart stores, bringing the total to more than 4,200.
While the company said it planned to add labor hours to help bolster “in-store execution,” the Cleveland report said labor investments are “almost non-existent,” an issue the research firm called the “biggest problem by far.”
Even as Wal-Mart tries to stock shelves better, the company is working to curb inventory growth in the U.S. -- an effort to cut costs and avoid being stuck with slower-moving merchandise. Wal-Mart said earlier this year that it would try to limit its inventory increases to half the rate of sales growth in 2014. Over the past two fiscal years, growth of Wal-Mart’s U.S. inventory regularly has exceeded that of sales.
Smaller Formats
For years, Wal-Mart grew and prospered by opening one supercenter after another. With the big-box model falling out of favor as Americans rush online, the company has started building smaller stores and experimenting with different formats.
Wal-Mart has appointed a new leader in charge of the smaller stores. Michael S. Moore was named executive vice president of small formats for Wal-Mart U.S., effective July 17, according to an internal memo. Moore previously had been president of Wal-Mart’s central U.S. division.
The company added 105 new Neighborhood Markets last fiscal year, bringing the total to 346. Foran’s experience at Woolworths will be useful because its stores are similar to the Neighborhood Markets, Gildenberg said.
By putting Foran in charge of the U.S., CEO McMillon is trying to build an executive team with a “diversity of experience,” Gildenberg said.
