Wal-Mart U.S. CEO is Out; Head of Asian Operations to Succeed Him

In an interesting turn of events, retail giant Wal-Mart (NYSE:WMT) reported that its U.S. division CEO Bill Simon is stepping down from his position. Mr. Simon, who served at the company for eight years, was Wal-Mart U.S. CEO since 2010. He was also among the top contenders for the company’s CEO position before Doug McMillion was preferred over him. Wal-Mart’s head of Asian operations Gregory Foran will take over Bill Simon’s responsibilities on August 9 and Simon will remain associated with the company through a six-month consulting contract to ensure a smooth transition. ^[1]

While the exact reason behind Bill Simon’s unexpected departure remains unclear, it is speculated that the company’s recent dismal performance in the U.S. might have put him under pressure. Some analysts even believe that Simon’s last month interview with CNBC, in which he issued an implicit warning on earnings, could have been one of the factors that pushed him towards the exit. ^[2] What’s most interesting to note in this situation is that Simon’s successor Gregory Foran has never worked in the U.S. and has been with the company for only three years. It seems that Wal-Mart did not want to waste much time in replacing its U.S. CEO, which is somewhat evident from the fact that it preferred Foran over someone with ample experience in retailing in the U.S.

Wal-Mart appears to be undergoing a major overhaul in its management structure as it hired a new CEO for the company in February and replaced its Canadian CEO last month.

Our price estimate for Wal-Mart stands at $79.30, which is less than 5% ahead of the market price.

See our complete analysis for Wal-Mart

Wal-Mart’s U.S. division has been struggling for a while now,  due to the sluggish economic environment in the U.S. The company has reported a comparable sales decline for five consecutive quarters, with store traffic declining in the last six quarters. Wal-Mart’s results have been negatively impacted by increased taxes, slow job growth and higher health care costs that have affected the spending of medium-to-low end customers. Adverse weather conditions and a reduction in SNAP benefits have further hit the retailer’s growth. In the most recently concluded quarter, Wal-Mart U.S. reported a comparable sales decline of 0.2% with a 5% fall in profits, and it issued disappointing guidance for the second quarter of fiscal 2015. While much of the company’s troubles can be attributed to the broader macro-economic factors, one cannot ignore that dollar stores have been slowly nibbling their way in the grocery market. Their convenient locations have given them a competitive edge over Wal-Mart. Moreover, even at established locations, there have been reports of  inadequate staffing and weak stocking levels.

Bill Simon has been credited with effectively understanding and taking advantage of growth opportunities. Under his leadership, Wal-Mart U.S. has opened hundreds of smaller stores (neighborhood markets and Wal-Mart Express) in densely populated urban markets in the last couple of years to win customers from dollar stores. The company plans to accelerate the deployment of its small stores going forward, with 270-300 such stores planned for fiscal 2015. Simon can also be credited for several initiatives for Wal-Mart’s online business growth such as the omni-channel platform, same-day delivery, online grocery sales, etc. With his untimely exit from the company, it now falls to Gregory Foran to ensure good progress on these strategies. It will be interesting to see how Foran handles these responsibilities given that he hasn’t run a company as big as Wal-Mart U.S. so far and most of his retailing experience is limited to Australia and China, where Wal-Mart hasn’t done particularly well. ^[3]

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1. Walmart Names Gregory Foran President and CEO of Walmart U.S., Walmart, Jul 24 2014 [↩]
2. Wal-Mart U.S. CEO Bill Simon steps down, USA Today, Jul 24 2014 [↩]
3. Head of Wal-Mart’s U.S. Division Leaving, The Wall Street Journal, Jul 24 2014 [↩]