Restoring Wal-Mart

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And while Castro-Wright and his team plan the Wal-Mart of the future, the company's legal team has been fighting the same old ugly labor battles. Wal-Mart has been tarred by an ongoing gender-discrimination class action filed in California in 2001, and it recently was ordered to pay $62 million in penalties on top of the $78.5 million judgment awarded by a jury last year after it found Wal-Mart guilty of shortchanging associates in Pennsylvania who worked during their breaks or after they clocked out. (Wal-Mart says it will appeal.) Nor has it looked all that cuddly in its death-match legal posture in a couple of high-profile firings, the issues notwithstanding. Case in point: the dismissal of advertising chief Julie Roehm, accused of having an affair with a subordinate (also fired) and taking freebies from an advertising agency (also fired) in violation of company policies. She denies the allegations and has sued, loudly.

More to the point, outgoing executives have characterized Wal-Mart as hopelessly inflexible, clinging to its old culture. Even if the company wants to change its image, argues Roehm, who helped reposition Chrysler and Ford, it can't help itself.

Another issue is more basic: absolute size. "One of the difficulties that we face at Wal-Mart is scale, the fact that we have so many stores. Getting execution across all stores is difficult," says Castro-Wright. Any big change is difficult for large corporations. To change so many things, as Wal-Mart is doing, is asking a lot.

Next year is critical for Wal-Mart: it must deliver on the promises made to Wall Street. In its struggles, Wal-Mart faintly resembles another company that once ruled retailing from a central HQ. Sears, Roebuck grew fat supplying rural and small-town America, but ultimately its culture couldn't adjust to shopping-mall America or to discounters. Shoppers today have little idea how awesome was the power of the Chicago merchant. And before Sears there was the Great Atlantic & Pacific Tea Co., the A&P, an urban power that once ran nearly 16,000 U.S. stores. Competitors quaked before it. This is the history of retailing. It says that every company that has reached No. 1, from Woolworth's to Kmart, has eventually spit the bit, unable to cope with market shifts. Wal-Mart is a far superior operator to any of those has-beens--it will produce $20 billion in operating income this year. But being king is an awfully heavy weight to bear, and Wal-Mart is feeling the strain.