Wal-Mart: 'On the Side of the Angels'

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When Wal-Mart came under attack on a variety of fronts was that a problem of marketing or the substance of its policies?

In my mind, and I may be absolutely wrong on this, it has nothing to do with marketing. It has to do with a very specific issue we had when we got into food. The UFCW [United Food & Commercial Workers Union] felt like there was a long-term danger to them, which created then the offshoot of Wake Up Wal-Mart and Wal-Mart Watch. The political pressure, the funding behind stopping stores from growing, big-box bills, the health-care bill in Maryland—if you look at any one of those things, you'll see that union money is behind those efforts.

That has to do, first of all, with the fact that our opponent has extraordinary political power and a lot of money. But it also has to do with our lack of sophistication in the area of corporate affairs, not marketing, in corporate affairs. In the late 1990s, when it started and our board said you all have to do something about this, we said, well, we really don't. Our sales are still good and earnings are very good, record sales and record earnings. The board would complain about it. My thoughts were always, well, that's because the board is going to cocktail parties with people who aren't shopping at Wal-Mart. In the end, the board was right. They were sensing, I think, getting into their group earlier than what we were.

It still doesn't resonate at the customer level. All the polling we do shows that less than one-tenth of 1% of the people polled would not shop at Wal-Mart or have stopped shopping Wal-Mart because of what they've read about Wal-Mart. But it's an important issue in getting future stores. It's a very important issue for our associate morale, seeing their company bashed day after day after day.

Why don't you think Wal-Mart gets more credit for some of the really great stuff it does?

I think we do. I mean, I think that's why we did $345 billion last year. I think from a customer standpoint, we do get that credit. We don't get that credit from government or institutions. But how else could you have withstood this onslaught? But if you think about it—yes, some of it's self-induced by doing things wrong—but an ad that shows a nuclear bomb going off because of Wal-Mart? If the customers didn't like the store and didn't trust us, over the last several years we would have paid a very dear price for it.

A lot of attention has been focused on higher gasoline prices as a factor in the decline of same-store sales in the U.S. In your view, what are the other important factors besides gas prices?

I think there are two. Our business is quite healthy in consumables, food, fresh food, pets, electronics. You go across our store and we're doing very well in almost all the areas. We are not doing well in apparel and home. And we just missed it.

You mentioned that competitors are narrowing the price gap. Do you see any need to evolve the Wal-Mart brand?

I guess that I don't know that I agree that you have to evolve it. I've been here since '79 and the pricing has always been under pressure, whether it was Gibson's or TG&Y or Kmart or Target (TGT) or the grocery stores. Whoever it was, there's always been an ebb and flow of how do you separate yourself. I just read something where we're doing some things to separate ourselves from a competitor. That's just an ongoing process that occurs.

We are going to sell for less. I believe that long after we are gone, the person who sells for less will do more business than the person who doesn't. If you look at it, the core issue at Wal-Mart is in how you create a value for the consumer where a brand name doesn't exist. Because we don't need to evolve this company when it comes to selling Tide or All or selling Advil—things where the customer knows, here's what the price is, here's the value. We can drive that business and we can create the separation that we need if we have the wherewithal to do that on pricing. But where we really have our challenge is to create the price perception on those things that are not branded.

Which is like apparel and home, where you have your private label. Where you've done better is existing national brands.

We sell 20-some percent of all the denim bottoms sold in the U.S., but we only sell 5% of the shirts because you have branded bottoms but you don't have branded tops.

It's a pretty straightforward issue that Eduardo and his team are thinking about and John Fleming, who's got the ability and creativity to do it: How do you make that move, and how do you create that back through marketing, that consistent message that gives credibility to that in-store brand? Kohl's (KSS) has done a very good job of it, but Kohl's has the brands that they built the private label off of. Wal-Mart doesn't have the brands to build the private label off of.