Story frist appeared in USA Today
The largest employer in the U.S. says short-term economic fixes could work, but sustained job creation won't happen without tax reform and new trade agreements. One week after President Obama and Congress launched new jobs plans, Wal-Mart CEO Mike Duke says there are structural issues holding back American companies. One reporter caught up with the man running the largest retailer in the world to find out what to expect for the rest of the year and how to get businesses hiring again. Her conversation below has been edited for clarity and length.
Q: September caps what has been a tough summer after the U.S. credit downgrade and a volatile stock market. For the rest of the year, what do you expect to see for the economy?
A: I'm not an economist, so I always qualify any forecast with a simple approach of how I hear customers talking in our stores. And customers today are concerned. If we could start to see improvements in unemployment or lower fuel prices, then I could see that lead to more positive consumer confidence and consumer spending.
The overall global economy is still struggling. Because we operate in 28 countries, we get a pretty good perspective. I'm out visiting stores virtually every week, and consumer confidence is not good. Probably the single biggest topic of concern is unemployment and jobs. This lengthy period of high unemployment is causing that cycle of consumer confidence to really be down. Increases in fuel costs really take from the consumer's spending ability. The U.S. consumer is under a lot of pressure. Meanwhile, we have large businesses in China and Brazil, and that's a different story. Those markets have recovered faster. There's more optimism. A strong consumer and emerging middle class is leading to faster rates of growth in the emerging markets around the world.
Q: So growth is coming from outside of the U.S.?
A: We still see a lot of opportunity in the U.S. But there will be a lot of growth in emerging markets. In the U.S., we have pockets of areas that have very, very little penetration and have millions of customers that just really don't have access to a Wal-Mart store. So we do see growth in the U.S. Outside the U.S., our investment in capital and number of stores, potential acquisitions in emerging markets will be an area of real growth opportunity. I was really pleased recently that we completed an acquisition of South Africa-based Massmart. Even entering a new continent like Africa helps us to reach millions more customers in the emerging market status. We're growing rapidly in China, Brazil and other Latin American countries. So we will be having a greater percentage of our capital invested in emerging markets.
Q: What will it take to get businesses to create jobs in the U.S.?
A: The priority on jobs that Washington is giving right now is very appropriate. There will be short-term steps that I'm sure the president and Congress should be working on. But there are also longer-term structural issues that need to be addressed. I recently testified before the Senate Finance Committee about corporate tax reform because of the uncompetitive situation we put American companies in in a global environment. We need to lower the corporate tax rate as much as we can, make the tax base as broad as we can make it, and we need to move to a territorial system as quickly as we can. Corporate tax reform is one of those real structural issues that face American companies. Another would be the trade agreements that are holding up the development and expansion of American jobs. A third one is in the area of health care. We need to find ways to bend the cost curve for both public and private sectors of health care.
Q: In that testimony, you laid out specifically how the current tax code puts Wal-Mart at a disadvantage vs. international competitors. How?
A: Wal-Mart has an effective tax rate, and pays it, of about 34%. A very large international retailer based in the U.K. would have an effective rate in the range of 20%. When we are looking at expansion in markets around the world, we would be bidding for real estate or potential acquisitions against another competitor that has a much lower effective tax rate. So this competitor could afford to outbid us and be able to grow their company when Wal-Mart would kind of have one hand tied behind our back.
Q: Here at home there are other large online retailers, such as Amazon, not paying the same tax rates as you do. What can you do about it?
A: We're trying to communicate with elected officials because we do think there is a loophole in the current system. But it's not just Wal-Mart. The very small retailers, the locally owned retailers, are affected by this, those companies that create jobs locally across small towns and cities across America. It's the same customer, the same purchase, and if they buy it in a bricks-and-mortar store, they are paying a sales tax, and if they buy it from an online-only retailer, they're not. That's probably one of those loopholes that probably needs to be closed.
Q: What would you like to see come out of the president's and Congress' jobs plans?
A: The discussions around infrastructure investment and other steps, potential payroll tax benefits that would attempt to provide for still some consumer spending ability. So these kind of short-term discussions that Congress and the president will be having and I know that businesses would support. But I think it would be a mistake to stop and not address the longer-term issues, the corporate tax reform and trade agreements.
Q: What are the priorities at Wal-Mart right now?
A: Wal-Mart U.S. is our largest segment, and the high priority on growing comp sales or existing store sales in the U.S. is the very, very top priority. The key to that is driving the productivity loop. At Wal-Mart it goes back to Sam Walton and the foundation and business model that we simply operate for less, or everyday low cost. We're known for operating in a very efficient way and then giving those savings to customers. That's why everyday low price is the second part of the productivity loop. Having low prices ends up driving traffic to our stores and increasing sales, which allows us then to lower expenses again and lower prices. A third would be global e-commerce and multichannel. Customers today are using technology to shop. Today in the world of the new technology, the way that customers are using social media is just fast changing. We are in a great position to be serving customers in this new age. And then the overriding priority that makes all of this happen is the development of people. I spend more time on the people-development priorities than I do any other single thing as CEO. The greatest responsibility rests with our people. We have about 2.2 million associates.
Someone asked me about what's it like managing 2.2 million associates, and I said, 'When they're Wal-Mart associates, it's not all that hard because of the quality and the depth of our talent.' I'm really proud of the fact that 70% of the managers in the U.S. started as hourly associates with our company. So talent development, people development, is the overriding, most important priority that enables those other priorities to take place.
Q: How do you keep fostering the Wal-Mart culture?
A: I was always intrigued when I was growing up, and then in engineering school, with the idea of a perpetual machine. I think of the Wal-Mart culture as that. It's kind of self-creating. Our day-to-day process of managing the company and the basic beliefs, the basic foundation of integrity in the company, the way that we train and develop people ends up perpetuating the culture of the company. Sam Walton, if he could come back today, would be very, very proud of the culture that he created and still exists at Wal-Mart.
