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Wal-Mart mea culpa: 'We're human beings'
Execs admit to "mistakes" but tell shareholders that company's integrity remains intact.
June 3, 2005: 5:40 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - It wasn't a call for the W-A-L-M-A-R-T cheer that drew the loudest applause from the annual gathering of the retailers' shareholders Friday.

Instead, it was this simple admission from a member of the Walton family: "We're a bunch of human beings running this company and we make mistakes from time to time," Rob Walton, chairman of Wal-Mart (Research)'s board of directors and son of Wal-Mart founder Sam Walton, told shareholders to a thunderous response.

David Glass, chairman of the board's executive committee, was equally apologetic.

"While we're trying to do the right thing by our customers and shareholders, we did nothing about our image. Therefore we've been vulnerable to attacks," said Glass. "I thought all we had to do was run our business and it would go away. But we already know the result of that."

The world's largest retailer has found itself distracted by a consistent drumbeat of negative publicity at a time when same-store sales -- or sales at its stores open at least a year -- have slowed and continue to trail that of its rival Target (Research), higher gas prices continue to weigh on its customers, and its stock flounders near a 52-week low.

Some industry watchers caution that Wal-Mart's image problem may be having an impact on sales and employee morale, particularly in light of such reports that former Vice Chairman Tom Coughlin padded his expense account with up to $500,000 in improper purchases and numerous lawsuits against it by disgruntled employees.

"We've made our share of mistakes and we've tried hard to correct them, but we've never covered them up," Glass said. "What we need to do much better is to get our story out about how we feel and how we really run our business."

In the spirit of more openness and transparency, Wal-Mart earlier this year invited members of the media to Rogers, Ark. for a first-ever meet-and-greet with CEO Lee Scott and other members of its management team.

At the Friday meeting (monitored via Webcast), it was apparent that the company's management team was deliberately focused on maintaining a self-deprecating tone, choosing to highlight areas of improvement rather than turning it into a typical Wal-Mart cheerleading fest.

"We have to reflect on our shortcomings. We have to be self-critical and think about how do we raise the bar," said Mike Duke, CEO of Wal-Mart Stores USA.

Duke admitted that Wal-Mart had high expectations for sales growth but failed to exceed it over the past year.

"We're not always consistent with our message that the customer is number one," Duke said. "We're not always consistent with our in-stock situation and sometimes the checkout lines are too long."

While Wal-Mart has done a great job focusing on the discount shopper, Duke said, it has failed to address customers who are willing to pay more for better quality merchandise.

Going forward, Duke said Wal-Mart has to try to become a better place to work. "We have to improve the shopping experience for the female customer because she represents over 70 percent of our business. We also have to play offense. We have to play to win and become aggressive with expense reduction."

About 20,000 Wal-Mart shareholders attended the annual meeting at the Bud Walton Arena in Fayetteville, Ark. As usual, attendees were treated to surprise celebrity performances. Singer and reality show star Jessica Simpson delivered a performance of the national anthem.

Singer Jon Bon Jovi also entertained the crowd with a few songs. Both Simpson and Bon Jovi briefly praised Wal-Mart after their performances.

Earlier in the day, shareholders re-elected all of Wal-Mart's 14 directors.

A few contentious moments came during the presentation of eight shareholder proposals. All eight proposals, on topics such as executive compensation, Wal-Mart's ethics and its environmental impact, pay and employment opportunities, were voted down.

Martha Burke, chairwoman of the National Council of Women's Organizations (NCWO), made one of the most vociferous arguments to Wal-Mart's management.

"Two women on the board of Wal-Mart are not enough. We can do better," Burke said. "Mr. Walton was about being fair."

Paul Blank, campaign director of the "Wake-Up Wal-Mart Campaign" dismissed the mea culpa from Wal-Mart's management.

"Today, Wal-Mart executive after Wal-Mart executive talked about the responsibility "to do the right thing," Blank said in a statement. "But doing the right thing starts with telling the American people the truth. The truth is that Wal-Mart chooses not to address its many problems which are of its own making."

"The fact is that Wal-Mart is as concerned about doing the right thing as tobacco companies are concerned about the health of Americans," he added.

Laying out the gameplan

Later in the day, Wal-Mart CEO Lee Scott and other executives engaged in a questions-and-answer session with analysts.

Given that Wal-Mart's stock is down over 20 percent since last March on the back of slower sales, Scott was asked about the retailer's plan of attack on improving sales, new areas of growth and issues with the current merchandise strategy.

Scott said he realized that the retailer has to improve more things than "we thought we had to." At the same time he put both investors and consumers on watch.

"We'll be stepping up in ways that will make us a better company at less cost and subject to less criticism," he added.

Specifically, regarding Wal-Mart's expansion plans, Scott stated that he wasn't at all worried about "cannibalization" concerns as long as each new store gives shareholders returns and contributes to overall profitability.

This year, the retailer plans to open between 240 to 250 of its large format Supercenter stores, between 40 to 45 Wal-Mart discount stores, between 25 to 30 smaller neighborhood markets and more than 40 new Sam's Clubs.

Wal-Mart currently operates over 5,700 stores worldwide, including 1,808 Supercenters, 1,293 Wal-Mart discount stores, 554 Sam's Club warehouse stores and 85 neighborhood market,

The retailer also has over 2,000 international stores and employs more than 1.6 million workers in the United States and abroad. Wal-Mart's total sales in its previous fiscal year were $288 billion.

Taking a page out of Target's strategy, Scott stressed the need for Wal-Mart to expand its appeal to a higher income consumer.

In that respect, Scott said Wal-Mart would work on rethinking its merchandising approach and marketing message. Citing the strong sales performance of more upscale and fashion-focused retailers such as Nordstrom, Tiffany and Target, he said Wal-Mart shouldn't spend all its time chasing customers going through economic cycles.

Target's same-store sales grew 6.2 percent in the first quarter compared to a 3 percent growth for Wal-Mart. But Wal-Mart's total sales for the period clearly outpaced that of Target, coming in at $3.98 billion compared to $1.29 billion for its rival.

Wal-Mart's chief financial officer Tom Schoewe told analysts that Wal-Mart would stay committed to investing capital for internal growth, eyeing acquisitions and well as boosting share repurchases.  Top of page


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