In Economic Slowdown, Wal-Mart Counts on Its Cultural Roots

The Saturday morning gathering looks like a pep rally before a big football game. It starts and ends with a noisy cheer, and in between are moments of rowdy applause as the coach challenges his team to beat its rivals.

This is Wal-Mart Store Inc.'s weekly sales meeting, where 600 executives and associates hear about the previous week's results, compare notes on what they're seeing in the aisles and learn how they can improve their numbers.

In response to a jittery economy, the world's largest retailer is relying more heavily on the Saturday sessions, along with other tactics and traditions put into place by late founder Sam Walton, to keep growing.

Wal-Mart, which has seen slower sales in the past year, reported a 4 percent increase in profits for the first quarter ended April 30. It warned that double-digit earnings growth won't return until at least the second half of the year.

"We have no control of the economy," said Lee Scott, president and chief executive, in an interview after a Saturday session. "But we have more confidence that we have control of our destiny."

The chain's growth plan has several facets: squeezing more sales out of its 4,000-plus stores worldwide; fixing and developing its international business; and expanding its "super center" format, which combine general merchandise with a supermarket. The company now operates 952 super centers and wants to add 150 to 175 per year.

But some questions remain. Can rapidly expanding Wal-Mart, now with annual sales of $191.3 billion, convey a sense of urgency to its 1.2 million employees worldwide? And will it be able to sell all of those workers on Wal-Mart's culture of frugality, integrity and service?

The retailer is known for building loyalty by treating employers like partners in the business, a trait that some describe as cult-like. It's also ruthless when it comes to controlling expenses.

"Can you take this `good ole boy' culture that's ingrained and bring it to all four corners of the U.S.? It's a tough thing to do," said Rob Voss, a 20-year Wal-Mart veteran, who left his merchandising executive post two years ago.

At least one analyst -- Bob Buchanan of A.G. Edwards -- said he is noticing poor customer service, long lines at the aisles and sloppy merchandise at a number of stores.

"Wal-Mart is experiencing some growth pains," said Buchanan. "It's two generations removed from its evangelical leader. Their game has slipped."

But Jeff Feiner, managing director of Lehman Brothers, believes that Wal-Mart is one retailer that will be able to gain market share as spending slows down because of its low prices and lean cost structure.

Scott, a 22-year veteran who rose to become CEO in January 2000, is intent on maintaining Wal-Mart's success by improving customer service and keeping the right merchandise in stock.

Wal-Mart, whose trademark policy is "everyday low prices," is also pricing its merchandise more aggressively in response to heavier discounting from Kmart Corp., Target Corp. and other competitors. It's also looking to further pare expenses, speed up deliveries and strengthen its clothing lines.

"We are paranoid," said Scott, who, along with other executives, shops competitors once week. "Everyone is getting better."

He rattled off names -- Penney, whose home merchandise is getting stronger; apparel specialist Kohl's Corp.; and Home Depot Inc. and Lowe's Cos., whose lawn and garden categories are considered threats.

Perhaps Wal-Mart's biggest weapon in a soft economy is its ability to control costs better than its competitors. This frugality has been a core value since the company was founded in 1962.

Wal-Mart's 660,000-square-foot headquarters, with its drab gray interiors and frayed carpets, looks more like a public school than the home of one of the world's largest corporations. Business is often done in the no-frills cafeteria, and suppliers meet with managers in stark, cramped rooms. Employees have to throw out their own garbage at the end of the day, and double up in hotel rooms on business trips.

Wal-Mart, which hasn't had any home-office layoffs since 1995, is also keeping a closer eye on jobs. Any hiring to fill openings has to be justified, company officials said.

A jump in utility costs have also forced more cost-consciousness.

Wal-Mart also makes a point of not buying too much into its own success.

"No matter how good Wal-Mart is doing, they believe they can always get better," said Bob Duncan, a professor at Northwestern University's Kellogg Graduate School of Management, a specialist in corporate culture.

Not becoming complacent was a key rule passed down by Walton, who made sure executives' egos were kept in check.

"Even if the week was great, we would come out of the Saturday meeting feeling like the chain was going bankrupt," recalled Voss, who was at Wal-Mart from 1975 to 1990 and again for four years beginning in 1995, three years after Walton died. Voss is now a retail consultant based in Weston, Conn.

Walton's successors -- first David Glass and now Scott -- are less domineering, but the competitive attitude is very much there. Even while listening to reports of strong sales at a recent Saturday session, management focused on how to compete better with drug store chains CVS Corp. and Walgreens Co. in customer service.

Not everyone thrives in Wal-Mart's demanding environment, but plenty of employees are easy converts. Among the latter are George Tracy, a 43-year-old personnel coordinator at one of the company's distribution centers in Bentonville.

"Wal-Mart practices what it preaches," said Tracy, who started working for the chain three years ago after 20 years in the Air Force. "Respect for the individual, striving for excellence, and exceeding customers' expectations. If you just live with those three principles, you can succeed in anything."