When he stepped into the chief executive job at Wal-Mart Stores (WMT, news, msgs) in February, Michael T. Duke looked like the luckiest retailer in America.
Duke, 59, inherited a rigorously efficient company that rang up $401 billion in sales and $13.4 billion in profits last year. Wal-Mart's U.S. same-store sales grew 5% in April as most rivals are struggling to stanch losses.
Duke, who makes his public debut at the company's annual shareholder meeting today, now must figure out how to keep the momentum going.
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More than a quarter of Wal-Mart's sales increase has come from new shoppers, more than half of whom have household incomes of at least $50,000. Wal-Mart execs say that higher-income group spends an average of 40% more per visit than the typical shopper.
"Wal-Mart is becoming increasingly relevant to a growing proportion of households," says William Blair analyst Mark Miller. As Wal-Mart's U.S. marketing chief Stephen F. Quinn puts it: "We are being reassessed."
The question is whether Duke can hold on to that more affluent demographic once the economy improves.
Wal-Mart's reputation for humdrum goods and aggressive labor tactics has made it tough for the chain to gain a following among wealthier customers. To help keep them, Duke is expanding the presence of brands such as Dell (DELL, news, msgs) and Apple (AAPL, news, msgs), and it's putting pressure on manufacturers to advertise more in stores.
It's also aggressively ramping up an initiative called Project Impact. The effort's goal: to remodel most of the chain's 3,600 U.S. stores (it has 7,900 worldwide) and make them more inviting.
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And despite Wal-Mart's growth, he has laid off 800 staff at the Bentonville, Ark., headquarters and slashed other costs to keep the chain lean.
Such moves suggest Duke is taking a bolder role than expected by industry experts, who paint him as a caretaker CEO. They see his main mission as keeping Wal-Mart steady until execs such as 43-year-old international head C. Douglas McMillon get seasoned. Morgan Stanley analyst Gregory Melich calls Duke "the keep-it-going" leader.
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Aisles are being widened, lighting improved and shelves lowered to give the stores a more sophisticated feel. Even the well-trafficked corridor known as "Action Alley" is no longer packed with pallets of random merchandise.
The spruced-up aisles provide a more inviting home for brands that previously had little exposure in Wal-Mart but are now desperate to find customers.
Newer offerings range from Danskin apparel to gadgets from Dell, Palm (PALM, news, msgs) and Sony (SNE, news, msgs).
Dell Vice-President Michael Tatelman says the two-year-old partnership is expanding fast: "Some were skeptical of whether it would benefit us, but it has." The home department now features brands such as KitchenAid and Dyson, and a new line of products endorsed by celebrity chef Paula Deen.
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