Charlie Rose Talks to Wal-Mart's Mike Duke

In February 2009, Mike Duke became chief executive officer of Wal-Mart Stores (WMT), the world's largest retailer, only to face one of the toughest retail environments in company history. Duke has presided over six straight quarters of contracting same-store sales in the U.S., where Wal-Mart generates about 75 percent of its $408 billion in annual revenue. The stock has advanced 2.3 percent this year—less than the gains of 8.1 percent for the Standard & Poor's 500-stock index and 20 percent for retail rival Target (TGT). Wal-Mart is adding merchandise to U.S. outlets, reversing an earlier effort to de-clutter stores by offering fewer items. At the same time, Duke is looking to accelerate growth in such emerging markets as Brazil, China, and South Africa.

Duke, 60, sat down on Dec. 1 with Charlie Rose at Bloomberg headquarters in New York to discuss his tenure in an interview published in Bloomberg Businessweek's Dec. 6 issue. This is a longer version of their dialogue.

Charlie Rose: Mike, it's a pleasure to have you here. Thank you so much for coming. Wal-Mart knows numbers. So what do the numbers from the Thanksgiving period tell you about the state of retail in America in 2010?

We do look at a lot of numbers. But this would be like looking at a football game after the first three or four minutes of the game and trying to predict the outcome in the first few minutes. So I wouldn't dare try to give any indication about Christmas. But I think you probably know in addition, we really don't publish or share details about that day or about the specifics of our business. I would tell you, on an overall broader basis, though, that we feel that we are very well-positioned. We feel that the consumer is smarter today, loves shopping smarter, is proud of the fact that they are shopping smarter. And that, we believe, fits well with where we are positioned for Christmas.

What does shopping smarter mean to you?

It starts, first of all, with price. There is no doubt some of this has transpired during the recession. The economic crisis has caused some changes in the way the consumer shops. And frankly I think, again, it's to our benefit. And the fact that customers across the United States and around the world want to be smarter about the way they spend their money. And for some customers, it's because they have to. Those customers are under the most pressure from their financial status, have to be smarter with the way they spend their money. But even customers that have income want to be known as shopping smarter. So it starts with the wisest way that I spend my money, getting the best price, knowing that my basket of products is the best I could have done and being proud of that for being smart. I do say, Charlie, it's leading though to even a broader perspective from customers about the quality of the product I buy. I want to be smarter about that. And in addition, how the product is produced, the nutritional value of food, the sustainability of product, all of that. I find that customers want to know more about what they're buying. And most importantly though, they want to know that they're spending in the smartest way for their purchases and for their family.

Is there any trend as to buying a different kind of product?

Well, again, I think the economic recession has brought on some changes. And certainly, even back to a couple of years ago, customers did start to look more closely at discretionary spending. So clearly, customers needed to keep buying the basics. And Wal-Mart, we've been known for many years—back to the days of when Sam Walton started the company—we've been known for basics. The basic need of families and people across America. Wal-Mart was known as the place for basics. And today, here in the U.S. and around the world, it's something that's still a big part of our brand. I think customers during this period of time have really focused on basics and in some cases have relooked, have reevaluated discretionary spending. That's been part of the transition over the last couple years.

Let's look at revenue. You suggested that it'll be in a range from one percent less than previously to two percent more.

What we've really said, going into this fourth quarter, is that for the Walmart U.S. business, we had a range that was slightly positive to slightly negative. It was a range, I think, Bill Simon, who is the president of Wal-Mart U.S., provided as guidance at our October analyst meeting. And the Sam's business, Sam's U.S., had similar guidance, a little more on the positive side. The Sam's business has [shown] more positive momentum in the U.S. And I think their guidance for the fourth quarter was more positive.

When you look at the overall market for Walmart—China, India, Indonesia, Vietnam, Brazil—is the international market where the growth is going to be?

We actually have a lot of growth opportunity here in the U.S. So I would say it's both in the U.S. and in the international markets. So I start here in the U.S. because our big business, 75 percent of our business, is still here in the United States. And here in New York City or other urban markets, there is a big opportunity. We've started more initiatives in the urban markets of the U.S., including small stores.

In urban markets, Chicago specifically, New York.

That's right. We said Chicago initially. We've also announced our intention in Washington, D.C. We have four sites that are under development at this point that we really want to open in D.C. And I think you could look at other large urban markets in the U.S. We don't have anything to announce about New York. We're not at a point of having specifics here. But we see a lot of customers here, in Chicago, Washington, and other large cities that really just don't have access to Wal-Mart product and Wal-Mart prices, that we see as a real opportunity.

So urban is the growth area.

I'd say urban is a big growth area in the U.S. Then e-commerce—with multichannel in the U.S.—is a big opportunity to grow the business in the markets we're already in.

Because of digital.

Digital will help, for sure.

What can you tell us about the increase in digital—based on 2010—about what everybody is saying is a decided rise in online e-commerce spending?

Well, we've seen with our own site and our own purchases online that customers really, really want the information that e-commerce, that, can bring them about the products they're buying. It ties in even to what I was saying about shopping smarter. Shopping smarter includes getting more information about the product I buy, and a source of information is through the Internet. So with our traffic, and even through the this past weekend, our traffic has been up about 30 percent. More customers are going online, they either buy online or they research and buy in the store. And in many cases they may buy online and pick it up in the store.

How do you factor in the cost of the shipping?

We've actually had a program that we've announced in just the last few weeks, and on through this critical period, of free shipping for over 60,000 items. So a lot of customers think—again, part of being smart: "I want to look at my fully loaded cost, what is the cost of the product, the cost of shipping, and what does it really hit me to get that product to my home?" So we felt that free shipping on a lot of the product was timely and what customers were looking for. But I think the real key is what we call multichannel. I may be going to my Wal-Mart store a couple of times a week. In some cases buying it online and picking it up at the store is more convenient, I don't pay shipping, we call that "site to store." And that's been a very, very successful program that we see growing also. So in the U.S. there's growth, but to your original question, the international markets will absolutely provide great opportunity. I've mentioned I've spent quite a bit of time outside the U.S. …

Well, you ran the international division.

That's right. And in that role I really had a chance to spend a lot of time in markets around the world. But even in my current job, I've had two trips to Asia in the last six weeks and I was in China twice, India, Japan, been to Brazil this year. But particularly the emerging markets of the world, those big emerging markets like Brazil and other Latin American countries, India, China, have just tremendous opportunity. In almost all of them there's a rising middle class—

—If you're growing at nine percent or 10 percent, you're going to develop a new middle class which will have new buying power.

That's right, exactly.

And then there's your plans for Africa.

We've been looking at the sub-Saharan countries and particularly South Africa now for couple of years, and I've walked the townships and I've seen the opportunity with millions of customers, and it's a lot like our story in other markets. There are many, many customers that we believe we could help serve even more. We have had a very good relationship with Massmart (MSM:SJ), a company based in South Africa with operations now in 14 countries, and so thus our announcement that we are going to be investing and would like to acquire 51 percent of Massmart. We'd like to keep it as a separate listed company in South Africa. They're a great operation, a great management team, they're really working hard to serve customers that have not been served in the past. We think the integration with Wal-Mart—with the product, with our business philosophy, the sourcing, and other benefits—that we can help Massmart serve millions more customers.

When you look at the enormous opportunity for expansion, do you see that the better business model might be a relationship with existing companies, rather than simply starting from scratch and building up a Wal-Mart franchise?

I think it depends on the market. So there's no one answer that fits the whole story. In South Africa, in the sub-Saharan countries, we felt Massmart provided the very best way to enter the market because they fit so well with Wal-Mart, with our philosophy. In some countries like India, organized retailing has not really been established, and so in that case we have a partnership with a company that's not a retailer, a great company called Bharti [Enterprises], and we are helping them through a franchise relationship with their own stores—but we're operating cash-and-carry stores in a joint venture with them that sells business-to-business. In India, it was better to start from the ground up. In South Africa, an acquisition—an investment in an existing business—was the best. In China, we've done some of both.

All of them 100 percent owned by Wal-Mart?

We've transitioned. Initially we would have had joint ventures. Now with the changes in China, we've been able to transition to 100 percent owned. We also invested in a company called Trust-Mart … and it would become part of the Wal-Mart family in China.

When you ran the international division at Wal-Mart, one of the things that you did that got some attention was you closed down Germany. What was the lesson there?

There were probably several. First of all, I think as we went into Germany, the actual acquisition itself probably had errors back in the late '90s. And then the way of integration, the way that we moved into Germany to take over and operate the business, we made some mistakes. I think in some cases, and this is part of the learning process, is how we do due diligence and how we respect the local customer. We are a global company, but we serve customers locally and we really need to respect and appreciate their local taste. …

Local employees?

Local employees and all aspects of leverage globally, but really we should really operate as my local store. And I think it was learning in Germany that it would be self-inflicted errors and frankly, we learned from that. We of course do a different method of due diligence, the way we do integration of acquisitions, and a real focus on local. That's why when you visit our stores in China you'll see that it says Wal-Mart and it feels like a Wal-Mart, but when you're in the seafood department, you notice fresh seafood. The fish are live because that's the way the local customer wants to buy a fish.

There was at one time this notion that you were going to make the stores brighter, and it would change the flow in the stores. Have you changed that idea at all?

A few years ago our own customers were telling us that we were too cluttered, too crowded, not pleasant to shop in, and that it was very difficult. So we went through a process of cleaning up the stores, cleaning the aisles, we reduced inventory, reduced assortment, and frankly, we went too far. Customers said they loved the store better, you know—that it was easier to shop, cleaner, and we got good feedback from customers. But then the same customers would say: "But you don't have the product that I want and I'm missing some of [what] I come to Wal-Mart for." So what we've adjusted now is to go back and put some of the product back in that we eliminated.

The best bargains are always supposed to be on the aisles, is that correct?

Exactly. You really want to put in the aisle what the customer would be looking for, make it easy for the customer. And I think in some ways we moved too far, so we're now adjusting. But we don't want to go back to where we were a few years ago.

How has Wal-Mart been able to sustain its advantage under different CEOs, starting with Sam Walton, Lee Scott, now with you. Is it price? Is it choice? Is it capacity to respond to consumers with velocity? What is it?

Charlie, I think there are two things, and it really goes back to Sam Walton, through David Glass, Lee Scott, and now today. The two things would first be the business model itself, everyday low price with a broad assortment of product. And so the EDLP, every day low price, is really a business model that creates efficiency, lower operating expenses, a productivity loop, and prices so that the customer gets the lowest-priced basket of product that they could buy. That's the business model. The second would be the culture. The culture of the company that Sam Walton created that leads to how we treat associates, how we treat customers, the way we run the business, the overall environment of working at Wal-Mart. And this culture, the culture built on integrity and honesty, that shows a respect for individuals, a passion for customers—that culture, along with the business model, is a tremendous combination that just can't be beat.

What is your commitment to the salary level of your employees? I mean, what is the guiding principle for Wal-Mart?

Clearly, being competitive in wages and benefits is absolutely critical. And what I think is the real story is the opportunity, though. The fact that 70 percent of the managers in the United States at Wal-Mart started with the company as an hourly associate is really the great story of opportunity. I love when I meet vice-presidents [and] store managers that started with the company as an hourly associate years ago, and they've been promoted many times and now they're a VP, or they're in a big job, and they love to tell the story of how they started working their way through school—maybe as a cashier or stocking shelves or working in a warehouse—and now they're running a big operation. And the real story of our associates is the work environment, which leads to great opportunity.

So when you go into a market like Chicago, where you had intense negotiations with politicians and union people, tell us what you learned.

Well, I think it really was starting with just looking at ourselves. We would just look in the mirror and ask: Can we do a better job of serving local communities? Some of the initiatives on sustainability that we've talked about—how do we help consumers with what's really important to them? We found customers are more interested in companies that are more responsible. But the real story in Chicago, I think, is just telling our story of good jobs, creating opportunity for customers.

Do you have to make larger and different wage commitments in order to penetrate urban markets, as you move from Chicago, say, to New York and Washington?

Actually, the wages in Chicago were already competitive. So the big adjustments were not really related to wages and benefits. It really was saying how can we operate—in some cases large stores, in some cases small stores—and work with getting the stores approved and built, but showing and communicating the opportunities, the opportunity for growth, for jobs. But also solving, for customers, the customers in urban areas that face the food-desert issue—where product is not available for customers, or if it is available, it's at a very high price and it may not be at the quality of someone a hundred miles away from the city. We don't mind saying we do pay a lot of taxes. And to a city like Chicago, taxes and jobs are very, very important.

So you come in, you say: "We pay taxes and we provide jobs and that's why we ought to be able to have a very good relationship with your community."

And the third, the most important of all is: We help your customers. Your customers need Wal-Mart because of not having product available or overpaying for product if it is available.

What does it say, the fact that there has been a decline in U.S. sales?

I really chalk it up to two things. And as I mentioned, I always start by looking in the mirror. I think first of all, some of this was self-inflicted. And even what we were talking about earlier—about assortment, about the changes that we made—in some cases we caused ourselves the problem with the changes in the product itself. The second reason of course, over the last few quarters, would be the impact of the economy. There's no doubt that poor customers that shop at Wal-Mart have been under pressure. They have been during this recession. And so it's some internal, self-inflicted, and some related to the external environment.

So with all the knowledge you have and all the data you have, tell me how you see both the domestic economy and the global economy over the next year.

Well, first, I always start off by saying I'm a retailer, not an economist. I could tell you about the economy of the past or today. I can't tell you about what it will be in 2011. I can tell you what I hope it will be.

You have to make assumptions. You have to make capital allocations based on your judgment.

And I will tell you that I am hopeful, because I do believe that with progress and actions that we take in Washington and around the country that we can start to create some positive signals that could be the right thing to improve consumer confidence, which would cause the customer to want to go back and start to reengage in the economy. So I am hopeful, but I'm not willing to predict for sure. I will tell you that all the way through today, the customer is still under pressure. There's no doubt that the jobs, the unemployment data, other information that's published—data comes out—that that still would be something that the American public pays attention to. But I do think there is this pent-up hope, there is this desire for things to get better. And I'm hopeful looking out to 2011 that we'll start to see that come into play. I wouldn't expect a dramatic change, but I do think that small steps could lead to progress.

What do you need from the government?

Well, what we'd like to see, of course, is the working together with business that we can start to move progress—make progress on the big issues that are facing our country, you know, issues like tax, trade, globalization.

What do you want in tax?

I think there's a couple things. I think in the short term, there is the discussion that's going on right now about extending—

The Bush tax cuts—

—The tax cuts. And I think the American public is sitting back, hoping not to see a tax increase.

And so you recommend that to the President, and you hope that the Congress will extend both the Bush tax cuts, those for earners under $250,000 and those for over $250,000?

No, what I'm always most interested in is what's best for our customers. And I only represent what our customers say. The Wal-Mart poor customers across America that are shopping in our stores, they are saying: "I really don't want to have a tax increase." The second thing, though I do think it's important, would be overall comprehensive tax reform that really can create a situation so that American companies can be competitive in this global marketplace.

Well, I think that corporate leaders ought to be part of the dialogue, so help us to understand what you think would be helpful so that American businesses can be competitive in the global marketplace and therefore create more jobs and create more wealth. What would you like to see?

Well, on this area of tax, on comprehensive tax reform, clearly a company in the U.S. needs to be competitive with companies around the globe. The overall effective tax rate for corporations needs to be reduced and there needs to be a broader base.

To what?

I haven't got a number that I would say. I think it's one of those things that looking at the competitive marketplace and looking at how American companies are competing in this global situation with companies in other countries needs to be determined.

So corporate tax ought to be reduced.

That's right. And then of course a broader base of paying for the tax. And how do you look at that? I think it's complex. I know that when we look at the Wal-Mart situation, we compare ourselves to other retailers in a global marketplace and that's where we see the disadvantage for an American company.

Let me rephrase that: You went in for a chat with the President of the United States recently. What did you want to tell him? I mean, clearly you wanted to hear from him, but you were there at his invitation because he wanted to hear from you.

Well, I was there at his invitation because he wanted to hear about the customers. We have 150 million Americans shopping in our stores every week, so he's interested.

And he should be.

And he's interested in the overall economy. I would say out of respect [that] meetings with the President or others—certainly in one-on-one settings, would be private.

Fair enough. But tell me, you know, a hypothetical situation. Does that make it easier?

So the tax situation would be one. Trade and how America operates across the country, across the world in the area of trade's important, an efficient healthcare system is important.

So are you happy with the legislation, the health-care legislation that was passed?

What we really need to do is find a way, an implementation, to bend the cost curve.

And that's what it did not achieve, in your judgment?

That's what we still need to work on. I think it's remaining and it's a part of implementation.

Should it be changed? Should it be modified by the Congress that was just elected?

Well, what I believe is that there is a way to become more efficient, even with structure the way it's set up, that through a number of methods, health care can be more efficient in delivery in America. I think that is something that is remaining to be done. I'm not sure that it requires legislation.

But can they do that within the existing health-care reform legislation?

I do know that there would probably need to be additional steps such as putting in triggers on efficiency. I think there are things that relate to overall implementation related to delivery that can be done within the present system. So we don't need to go back to where we were because we all had said years ago that America's health-care system was not sustainable. So this would be three things that I would tell you that we often talk about: Tax, trade, and health care are the big three challenges.

Speak to trade. Do we have free trade today?

The South Korea legislation's very, very important. I think that would be a really good step. The work with Panama, Colombia, would be a very good step.

You support all of that.

Absolutely. I mean, there are American jobs at stake with each of these discussions. It's right for the consumer in America and it's right for creation of jobs in a global marketplace. The rest of the world is working together. We need to be participating and ensuring that American interests are really represented in the discussions of trade.

Do you think that Wal-Mart has fair access to most markets around the world?

Charlie, I hate to generalize—

I'll make it specific: China.

Generally, our relations with China, of opening up stores, have improved. Back a couple of years ago, China required central government approval. They changed that. We're able to open stores faster.

Wholly owned stores?

Right. I'm pleased at the wholly owned stores, that we're able to get them approved and opened in China. One specific that we had a lot of discussion about that needs to change is India. I'm pleased that the discussions in India are going well, but India does not allow foreign ownership of retail stores. But I applaud the government for opening up the discussion.

What do you worry about?

Always a great question and again, I've used the mirror. First, the thing that is probably the most challenging for a company like ours is continuing to grow the talent for a company that's growing around the world. And growing the leadership talent and that's why this is about the opportunity for not only job-creation but the career-creation. We will add thousands of customers. We can add sales to our top line. But it will require leadership.

Tell me what you have learned in that area.

There are a few things. First of all, people today want to work for a company with a purpose. And it's not just a job. It's not just a paycheck. I want to know that when I'm going to work, and I'm putting in hours, that there really is something important there.

Like the work you have done on sustainability?

It's been tremendous on eliminating waste, creating efficiency, reducing energy costs, reducing greenhouse gases, working with farmers, our direct-to-farm program to create sustainable agriculture. So many of our people are directly involved in these initiatives as a part of their job. So if I'm a buyer, and I'm a store manager, and I know that I'm not only buying merchandise now, but I'm really helping to improve that product in the way that it's made, I'm improving the footprint on the world. So the other thing you mentioned, opportunities for women …


It's amazing because you realize they're the majority of our customers, more than 50 percent of our customers in every market. And so creating opportunity and economic empowerment for women has been something again that's helped to lift and to cause Wal-Mart to be a better place to work—and frankly, to help us to serve more customers.

You said that Wal-Mart can change the world. Tell me what you meant.

Someone earlier today here in New York mentioned their small town in northern Canada. And this was not a person that works for Wal-Mart. And they said: "Wal-Mart coming to my town helped to change my community." I think we change the world by having a positive impact, community-by-community, city-by-city, product-by-product. So when we talk—our buyers' talks with a supplier about sustainability—and then all of the products we sell become more sustainable. When we teach several million farmers how to do sustainable agriculture, it's changing one at a time, cumulatively around the world, millions of people, so that we end up with a better world. The most important is the end result that millions of customers can live better and can have a higher quality of life, a better standard of living. When I walked the townships of South Africa earlier this year, I left there with an inspiration. We can change and have an impact in a positive way for the people of South Africa.

No one has ever doubted Wal-Mart's power. It even led to significant criticism. Do you believe you still have work to do in terms of any misconceptions about Wal-Mart?

Absolutely. There are people that still really don't understand us. I think we have to continue on the path that we've been on. Lee Scott got it started several years ago. In a number of cases, there is a lack of understanding. It's often someone who doesn't know Wal-Mart as well. It could be the old reputation. It could be someone that just doesn't understand, maybe doesn't know us well. And in some cases, we still have to improve ourselves.

And the commitment is?

The commitment is to move with accelerated pace on this journey so that we can have a more positive impact on more people. And then more people will know the story.

I mean, Wal-Mart should be, with the power you have, in the forefront of the battle because of the footprint you have and because of the number of people you employ.

That's right.

And the number of people you serve.

And the suppliers. That's where we're moving … in the front line of all of these areas that are important to our customers, and the use of energy, the waste in our systems. What's great about this is it's also good for our business. You know, this area of sustainability, some ask me: Have you invested millions of dollars? My answer is we've saved millions of dollars because eliminating waste, eliminating utility costs and energy consumption, it's good for shareholders at the same time and it allows us to lower prices for customers. We have a lot of work to do, so don't get me wrong. I'm proud of the progress we've made. But we need to accelerate and do much, much more.

What's the most important lesson you have learned, going from running the international division of Wal-Mart to running the whole thing?

You know, I think probably moving into this role, I've come to really respect the position that Wal-Mart has in the world. I respect the opportunity that we have to make a difference. We can have a very, very positive impact. We started to learn that as a company in recent years. I think from Katrina to sustainability to some of the other things, as we took on initiatives, we've come to say we can provide positive benefit. And I've come to appreciate even more in the last couple of years that we can really make a difference in the world on the big issues that are really important to the world because they're important to our customers.

As somebody said, you can do well and do good at the same time.

That's right. Exactly. You sure can. And I think we're showing that.

When they come to judge the tenure of Mike Duke as CEO, what is it you hope to be your legacy?

It's again, it's something I have a lot of respect for. Sam Walton, David Glass, and Lee Scott. So as the fourth person to occupy this office, I would say probably what Lee said: Most of all, I'd really like for Sam Walton to say that he would be really proud, that the foundation that Sam Walton started, that David Glass built on and Lee Scott built on, that we kept building on that foundation—that foundation of integrity, trust, relationships with customers, opportunities for associates. I think probably what I'd like Sam Walton to say is: "He took it to a whole new level with a lot of these big initiatives to help make it a better world to live in."

It's a pleasure to have you come here and talk to us at Bloomberg Businessweek. And I hope that we can do this on my television program as well.

Fantastic. Charlie, it's been a pleasure for me and a great honor to be here.

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