Friday, March 26, 2010

Wal-Mart’s Scott Outlines How to Survive the “New Normal”

lee_scott_2 Lee Scott provided a sobering look at the “new normal” facing the global economy during an appearance at Wake Forest University Wednesday, while also giving attendees at a capacity event advice on how to remain viable under difficult conditions.

Scott, a former Wal-Mart Stores Inc. CEO who still chairs the executive committee, acknowledged that we have likely survived the “worst of this recession” but he warned a normal recovery should not be expected. Evidence is everywhere that a rebound will take years, ranging from individual frugality to homes in Las Vegas valued well below their loan values. “And we’re a long way from virtual full employment,” he added.

Wal-Mart, the nation’s biggest retailer, also has seen surefire signals that consumers remain under stress, he said. For instance, customers who may buy large jars of spaghetti at the beginning of the month buy the smallest available size in the days before paychecks clear. Tire purchases have been put off. Craft items were hot at Christmas. Replacement parts such as lawnmower blades and sparkplugs compete with new product sales.

“People are buying only what they need when they need it,” Scott said. (His comments were hauntingly similar to those of PepsiCo CEO Indra Nooyi when she appeared at Wake Forest in February 2009, when she said consumers are more apt to clear out their pantries before restocking their shelves.)

Eventually, the global economy will regain momentum, but we will not revert to the old ways of doing business. “This economy is not going to get easy but there will be growth and engines of growth,” he assures. “Technology innovations will be the new growth engine for the economy.” He added, “The complexity of the world will continue to have impact on people's sensitivities.”

Against that backdrop, he shared a handful of lessons learned during a career at Yellow Freight and Wal-Mart. They included:

· Ego is the greatest enemy of leadership and one of the most difficult things to overcome.

· When people know what you want they will often give it to you.

· The ability to give honest and constructive feedback is a rare talent.

· Even if you fee strongly about something, there is a possibility you could be wrong. "The harshest critics may be the most helpful voices you hear,” Scott said. “We became a better company when we let our critics in and quit trying to evaluate their motivation. Many of them really wanted us to do well."

· Hiring people better than yourself is the most-effective way to improve your career. “When the board praised me for an idea I gave the credit to the people who spearheaded the effort. It is hard to always do that."

· Integrity is the single most important characteristic of a leader.

The executive also touted the importance of personal image, particularly in an organization such as Wal-Mart that values a professional look. He recalled his early days at the company, when he wore his hair long, enjoyed sweaters and red shoes. It took the intervention of a concerned manager and the purchase of three blue suits to improve his position. While individuality is noble, employees must take into account the culture – not to mention the dress code – of their employer.

Scott succinctly summed up the importance of having personal values and a good image in the face of global competition, telling attendees, “When you do get a job you better do it well because there are a lot of bright people willing to do what it takes to make a company successful.

During the question and answer session, Scott talked about past decisions and current challenges, including:

Private label: “It is a myth that private label is much better than retail.” While the margin could be double that of a branded product, he said the “penny profit” is higher for branded goods. Private label is needed, though, because it keeps the main consumer products companies “in check.”

Risk taking: It is necessary for companies to take some level of risk, “but you must understand the exposure if things don’t work.” He said Wal-Mart founder Sam Walton had a huge appetite for risk, quoting his mentor as saying, “It never hurts to stir the pot.” Without risk, they may have been no supercenters or Sam’s Club wholesale outlets.

Supplier relationships: “I like suppliers, which makes me unique in retail,” he said. Still, there must be some level of “friction” with suppliers, who tend to build in costs without thinking of the customer. “It doesn’t need to be hostile,” he added. “Transparency is one of the greatest attributes you can have.”

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