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The Economist: Business
- Face value: From bad to great
Lee Scott is stepping down having revived Wal-Mart’s share price—and its reputation
ONLY last year it seemed increasingly likely that Lee Scott’s reign as chief executive of Wal-Mart would end soon, in disappointment and against his will. The world’s largest retailer was suffering from slowing sales and falling profits in its core American market. Its share price had fallen by nearly one-third from its high in 1999, and a class-action suit filed by female workers, alleging systematic discrimination, had reinforced Wal-Mart’s reputation as the firm sensitive Americans loved to hate. Mr Scott was floundering, his attempt to rebrand Wal-Mart as an eco-crusader widely dismissed as mere “greenwashing”.
Yet such has been the transformation of Wal-Mart’s fortunes since then that the announcement, on November 21st, that Mr Scott would step down as chief executive at the end of January was greeted with surprise. Nobody doubted that the decision to go, at the relatively tender age of 59, was entirely his own. Whereas most other bosses, especially of retailers, are struggling in what is shaping up to be the harshest recession for decades, Mr Scott is leaving on a high. Sales are expected to rise by some 8% in this financial year. The firm’s share price, although down since September, is still about 20% higher than at the start of 2008. ...
- Online advertising: Not ye olde banners
Internet advertising will be relatively unscathed in the downturn
AT THE beginning of the year Jeff Zucker, the boss of NBC Universal, a big television and film company, told an audience of TV executives that their biggest challenge was to ensure “that we do not end up trading analogue dollars for digital pennies”. He meant that audiences were moving online faster than advertisers, thus leaving media companies short-changed. Now, near the end of the year, the situation looks even worse, as the recession threatens to turn even the analogue dollars into pennies. Will this hasten the shift towards internet advertising, or will it decline too?
Advertising rises and falls with the economy, though how much is a matter of debate. Randall Rothenberg, the boss of the Interactive Advertising Bureau, a trade association for digital advertisers, points to the remarkable stability of advertising at about 2% of GDP since 1919, when the data began to be collected. This would suggest that ad budgets will move roughly in line with economic output. ...
- Business in China: Going, Gome, gone?
China’s richest man disappears, and his company hits a wall
WHATEVER your notion of what constitutes good corporate governance for a listed company, having an important executive arrested is a problem. But not even being able to say whether, or why, an executive has been arrested is worse. Such is the lot of Gome, China’s largest electronics retailer, with 12% of the market, about half as much again as its nearest rival. In a few months Gome has gone from an example of extraordinary success, as it served China’s pent-up consumer demand, to an example of the murky and fragile state of Chinese business.
Gome is in trouble partly for reasons beyond its control: the impact of an economic slowdown on clearly chastened Chinese consumers. But it is also at risk because of the way it is managed. In September Gome’s founder and chairman, Huang Guangyu (pictured), was being described as Asia’s equivalent of Sam Walton, the founder of Wal-Mart. The Hurun Report, a newsletter, calculated that he was China’s richest man, with a fortune of $6.3 billion. Approximately $2 billion of that came from a 36% direct stake in Gome, and the rest from a hotch-potch of other investments in property, shares and an unusual private company that owns 450 of Gome’s 1,300 branches. ...
- Commercial aviation: Swings and roundabouts
Boeing and Airbus are well placed to weather the recession
NOT a lot is going right for Boeing at the moment. A bitter 57-day strike by machinists at the aviation giant was settled at the end of October, but its effects continue to reverberate. Executives say they cannot gauge the impact on delivery schedules of commercial aircraft until a thorough review is completed. But so complex is the choreography of manufacturing big airliners that a ten-week delay is the best guess. At normal rates of production that equates to around 90 “lost” planes with an average list price of more than $100m.
To make matters worse, during the strike Boeing discovered a new problem with its bestselling but serially delayed 787 Dreamliner. And this time the elaborate global supply-chain established to make the plane—a big factor behind the strike—was not to blame. A mistake by Boeing engineers meant that the fasteners used to attach titanium structures, such as the floor grid, to the composite “barrel” of the fuselage were wrongly located. Some 8,000 fasteners will have to be replaced on each of the first dozen 787s before they can be completed, in effect freezing production until early next year. Customers are now unlikely to get their hands on a 787 until well into 2010, nearly two years late. ...
- Mobile advertising: Madison, we have lift-off
Advertising on mobile phones finally seems to be getting through
MARKETERS have often claimed that mobile advertising is taking off. But this time they could be right, recession or not. Global numbers are hard to come by, but a leading mobile-advertising firm, AdMob, says the number of advertisements it has delivered worldwide has tripled, to 4.5 billion, in the past 12 months. Why? Because many of the obstacles that have held mobile advertising back are going away.
One is hardware. For years, surfing the internet on a phone was a pain, because screens were too small and the controls too clunky. But a new generation of “smart” phones such as Apple’s iPhone, Google’s G1 and the BlackBerry Storm have solved this problem. They have touch-screens large enough to display the web properly—and advertisements, too. ...
- Mining: Kloppers clipped
BHP Billiton ends its pursuit of Rio Tinto
“A DEAL for all seasons” was how Marius Kloppers, the boss of BHP Billiton, described his company’s bid for Rio Tinto, a rival Anglo-Australian mining giant. That was in August, before the chill of the credit crisis turned icy and the dark clouds of a global recession had begun to gather. On November 25th, after a year of reiterating the merits of the deal and several months into painstaking antitrust investigations by the European Union, BHP surprisingly decided to pull out.
This is a huge blow for the ambitious Mr Kloppers, who cuts an unusual figure in the mining industry: rather than being a rugged industry veteran with dirt under his fingernails, he is a sharp-witted former management consultant. He instigated the hostile advance on Rio in November 2007, barely a month after becoming BHP’s chief executive. Rio said his bid undervalued the company and maintained this position even when BHP raised its offer. At one point the all-share bid valued Rio at over $190 billion, which would have made the deal one of the biggest mergers in history. But it is a measure of the mining industry’s rapid reversal of fortunes that by the time BHP decided to abandon its pursuit of Rio this week, the value of its bid had shrunk to $66 billion. The decision to quit may pain Mr Kloppers, but the reasons for doing so have mounted steadily. ...
- Retailing in America: Dreaming of a black Christmas
American retailers and consumers fight to stay out of the red
EVEN the Grinch could not have engineered a more dismal set of circumstances for the start of America’s holiday shopping season: entire industries are on the brink of collapse, the gyrations of the stockmarket have driven investors to despair, the days of easy credit are a distant memory and retailers are going bust. Black Friday, the day after the Thanksgiving holiday that is considered to mark the start of the Christmas shopping season, is supposedly so named because sales over the three-day weekend can bring in enough customers to lift many retailers out of the red and into the black for the year. As they try to lure customers through their doors, desperate shopkeepers are offering huge discounts.
This year it is not just the scale of the discounts that is notable, but also how early the price-cutting began. Many shops started their holiday sales in October. Some think this boosted sales, but others worry that it encouraged people to delay purchases and hold out for even bigger reductions. Darrell Rigby, a retail expert at Bain & Company, a consultancy, calls this “a high