Originally created 12/26/05

Wal-Mart revamps to boost growth, reputation in 2006



BENTONVILLE, Ark. - Wal-Mart Stores Inc. hitched itself to country superstar Garth Brooks in 2005, but it could have adopted David Bowie's "Changes" as its anthem.

Beset by negative headlines, well-organized critics, slowing growth and a stagnant share price, the world's largest retailer launched initiatives it hopes will make 2006 a more prosperous and peaceful new year.

Analysts are already estimating higher sales and earnings for fiscal 2006, as Wal-Mart targets wealthier shoppers with higher-end merchandise and better marketing. However, the effect of criticism and its potential to generate more bad news can still counter Wal-Mart's launch of new, hipper merchandise and a public relations "war room."

"There are so many moving parts right now. It's like watching someone walk through a bedroom in the dark. You're not sure if they're going to make it to the bathroom or stub their toe," said Patricia Edwards, a portfolio manager at Wentworth, Hauser & Violich in Seattle, which manages $6.4 billion in assets and holds about 64,000 Wal-Mart shares.

The moving parts include a number of business changes, from reshuffling top management to signing an exclusive deal to distribute Brooks' music, a pact aimed at rekindling growth as smaller rivals like Target Corp. have pulled closer.

Also, two union-backed political campaign groups prompted Wal-Mart to set up two fast-reaction public relation teams in Bentonville and Washington to answer the critics' claims.

"I think they have the pulse of things they need to do and things they need to fix going forward," said Sandy Skrovan, who heads a Wal-Mart research program at consultant Retail Forward Inc. in Columbus, Ohio.

Wal-Mart Chief Executive Lee Scott, in an increasing number of public appearances, argues the company benefits America by saving the average family $2,300 a year.

"We will continue to grow, provide jobs, career opportunities and significant savings for working families," Scott wrote in a year-end message to employees. Wal-Mart also received a morale boost after Hurricane Katrina, when its quick response with food, supplies and cash assistance was praised for being faster than the federal government's effort.

The war over its reputation has a direct tie to Wal-Mart's bottom line.

In order to grow, Wal-Mart needs to build stores and draw new customers outside of its traditional base in the rural South. Those new markets include more urban, unionized and Democratic-leaning states like New York and California.

Critics say they'll fight Wal-Mart's efforts to expand and, where Wal-Mart does build, attempt to convince consumers to stay away. Wal-Mart Watch is also backing an effort in Maryland to overcome the veto of a bill that would require large employers to offer more generous health benefits.

"That will open the floodgates in two specific ways. It will allow other states and municipalities to go ahead with similar bills based on Maryland's success. Secondly, Maryland has a governor up for re-election. This is the first entry point to see if Wal-Mart is an election issue," said Tracy Sefl, a Wal-Mart Watch spokeswoman.

Wal-Mart rejects criticism of its health plans, saying health care is a national problem. The company did add lower-cost coverage in 2005 as an internal memo made public by Wal-Mart Watch showed that 46 percent of Wal-Mart employees' children were on Medicaid or uninsured.