Behind Wal-Mart's Executive Shuffle

The retailing giant is moving John Fleming from the top marketing post to merchandising to heal the rift between the two divisions

by Robert Berner

Wal-Mart's (WMT) shift of its top marketing officer to head its merchandising operations will help ease the deep tensions between the two divisions that have hurt the retailer's turnaround efforts.

The Bentonville (Ark.) discounter announced on Jan. 24 that John Fleming, 48, its chief marketing officer for the last two years, will become chief merchandising officer, a newly created post with expanded power over the goods Wal-Mart sells. Steven Quinn, 47, a senior vice-president within marketing who headed consumer research and strategy, was named Fleming's replacement as marketing chief.

The move follows turmoil in the marketing department over the last year that included the firing in December of senior executive Julie Roehm and dismissal of new ad agency, Interpublic-owned Draft FCB—after a lengthy search that Roehm led (see BusinessWeek.com, 12/7/06, "Wal-Mart Leaves Draft Out In The Cold"). While Wal-Mart started the year with a marketing push to expand the discounter's appeal to more upscale shoppers, it reversed course by the second half, going back to its traditional pitch of low price instead. Wal-Mart officials were unavailable for comment.

The Inner " Startup"

Underlying the problems in marketing, though, was a divide with Wal-Mart's powerful merchandising division, the unit responsible for buying and displaying goods within stores, company insiders say. Before Fleming became marketing head, the marketing department played second fiddle to merchandising and was jokingly referred to as the place Wal-Mart employees went to retire. It didn't even have a consumer research arm.

Fleming went to work expanding the department, adding consumer research and marketing strategy staffs, and creating a branding unit to define how Wal-Mart should position itself with consumers. Fleming called the department "a startup in the world's biggest turnaround."

Fleming's aimed to have the ascendant marketing department use its consumer research to help guide the merchant's product choices. But Wal-Mart's merchandising division wasn't accustomed to taking direction from marketing and the two departments didn't work together effectively, people familiar with the situation say. The merchants were slow to follow marketing's lead on product direction. For example, marketing had pushed denim for fall, but the theme wasn't apparent in stores.

A Merchant At Heart

Marketing even had trouble getting samples from the merchants for advertising shots. As marketing tried to elevate the store experience by improving store fixtures and layout, the merchandising division clamored for more in-store signs that signaled low price and cluttered the view in stores, insiders say.

The tension culminated last fall when Wall-Mart executives told Wall Street analysts that in apparel—a chronic laggard, core to driving profits and sales—the retailer had moved too far too fast in trying to make its offering more fashionable. The merchants won the war on low price as more signs appeared in stores and Wal-Mart went back to that theme in its marketing. "The net effect wasn't that effective," says Edward Weller, an analyst at ThinkEquity Partners in San Francisco.

The division between the two departments should be ironed out with Fleming's new appointment, which had been widely expected within Wal-Mart over the last several weeks. By training, he is more of a merchant than a marketer. He spent 19 years in such roles at the former department store divisions of Target (TGT) before joining Wal-Mart as its head of Internet sales.

Confidence in Management

All of Wal-Mart's core merchandising divisions—grocery, entertainment products, apparel, and home—will now be controlled by him. Before, those jobs were divided between Claire Watts, who headed home and apparel, and Doug Degn, a 24-year Wal-Mart veteran who ran the rest. Watts will now report to Fleming on apparel and Degn will retire, Wal-Mart said. Among other things, Fleming will also control a new organization focused on improving customer experience within stores, a priority he tried to push in marketing.

In a prepared statement, Eduardo Castro-Wright, CEO of Wal-Mart U.S., obliquely indicated that the management changes should make the two departments work more seamlessly. "As we enter year two, our focus will extend to merchandise assortment and marketing execution on the findings we identified in our customer research," he said. "I have a lot of confidence in the talent now charged with moving the company to the next level."

That won't be an easy task. It remains to be seen where Quinn and newly named ad firm, The Martin Agency of Richmond, Va., owned by Interpublic Group (IPG), will aim to capture new growth now that Wal-Mart has backed off tying to attract wealthier customers (see BusinessWeek.com, 1/12/07, "Wal-Mart's New-New Adman").

Deeper Problems?

Quinn, a former marketing executive at the Frito-Lay division of PepsiCo (PEP), is a stickler for consumer research and testing of marketing ideas, former Wal-Mart marketing employees say. Many advertising executives say, however, that a granular marketing approach to Wal-Mart's image and sales troubles won't be enough: It has to come up with a bigger message to shake up perceptions.

First, Wal-Mart must improve the customer experience in stores, from the jumbled look to customer service, says Richard Hastings, an analyst at Smyth-Bernard Sands. He adds that Wal-Mart has longed failed at executing such plans at the store level. The jury is out on whether new leadership in marketing and merchandising will be enough to make a difference.

Berner is a correspondent for BusinessWeek in Chicago.