FAYETTEVILLE, Ark. — As dawn was breaking Friday, traffic was already backed up on the interstate approaching the Bud Walton Arena. Roughly 20,000 revved-up associates, board members, retirees, and investors were heading for the annual Wal-Mart shareholders’ meeting, sporting bright red Sam’s Club T-shirts, American flags, and sparkly costumes from around the world.

Once inside the packed arena, the audience was treated to a highly entertaining four-hour extravaganza that was equal parts rock concert, pep rally, and even a little business.

The program included the most recent American Idol, Jordin Sparks; a group called Anti-Gravity, which featured people jumping around on extreme Moon Shoes; a Wal-Mart fellow who had competed for the honor of singing the National Anthem a cappella, which he did brilliantly; a City Council member from Chicago; Chris Gardner, whose life was portrayed in “The Pursuit of Happyness,” and several Wal-Mart individuals cited for acts of heroism. Sinbad, who served as master of ceremonies for the event, suggested the stock might go up if the proceedings started at a more normal hour, such as 11 a.m. Other attendees included numerous Wal-Mart executives; the stars of Disney’s “High School Musical”; the CEO of Wal-Mart, H. Lee Scott; Jennifer Lopez; and the chairman of the board of Wal-Mart, S. Robson Walton.

It’s a wonder it didn’t go five hours.

When the program threatened to lose steam, management fell back on the Wal-Mart cheer — which always brought the crowd to its feet — and on causing utter pandemonium by acknowledging various groups in the audience. (The folks from Mexico and from Sam’s Clubs were definitely the noisiest.) The excitement in the arena, more often home to the University of Arkansas Razorbacks, was palpable and genuine, and would have made Sam Walton proud.

Though Wal-Mart’s founder is long gone, his legacy lives on in traditions like the raucous annual meeting and the love affair with early morning gatherings. He is most present, though, in the ongoing commitment to Wal-Mart’s core mission: “Saving People Money So They Can Live Better.”

There is no doubting the dedication of the current crop of Wal-Mart executives and associates to that goal. There is, however, some question about whether the strategies and practices that built the world’s biggest and most successful company can continue to propel it forward.

The crowd would have been even noisier (hard to imagine) if they had known that Wall Street was about to celebrate Wal-Mart management’s announcement of an expanded $15 billion share buyback program by boosting the stock price almost 4%. Coupled with that disclosure was the news that the company was slowing the planned introduction of its supercenter stores in America. Put together, these items spotlight the challenges the company faces today.

Mr. Walton took the opportunity (apparently for the first time) to publicly thank Mr. Scott for his contributions to the company, saying, “The board and the Walton family have absolute confidence in you and your leadership.” That’s the kind of accolade that in some circles means just the opposite.

Certainly Mr. Scott is under the gun. In recent periods, the domestic Wal-Mart stores in America have turned in disappointing results. The stock has underperformed the S&P 500 since early 2004.

In reality, Mr. Scott has to deal with the fact that two great tailwinds behind the company’s astounding 40-year climb have lost steam. Wal-Mart grew initially because Sam Walton was an extraordinary merchant, but also because discounting caught on with the American public. Lower prices brought in the crowds and drove small-town competitors out of business. Just as the company began to encounter greater competition from other discounters and from its own saturation of the market, Wal-Mart embraced outsourcing. It brought its excellent logistical capabilities to bear and thus again lowered costs to the consumer, engendering a whole new round of growth.

Those opportunities appear largely behind the domestic company today, which is why Mr. Scott is focused on developing new avenues of growth. Much of the presentations to the press and the analysts last week focused on sustainability and health care. More than once management found itself defending initiatives such as reducing wasteful packaging as being good for the bottom line as well as the environment, and the country.

This, then, is perhaps the opportunity for Wal-Mart: to use its enormous size and its access to 185 million customers each week to promote solutions to some of the country’s most pressing problems, and in so doing buck up revenues. This is not as far-fetched as it may seem.
An example of doing well and doing right is the highly successful marketing of the compact fluorescent light bulb. The bulbs are now being sold at Wal-Mart in a wide variety of shapes and sizes. The company expects to sell 100 million of the bulbs this year, saving an estimated $3 billion in energy costs.

Another example is a clever gizmo the company has developed with one of its suppliers to indicate tire pressure. A Wal-Mart spokesman said underinflated tires in America waste 2 million gallons of gas each year. The company will be selling a replacement tire cap that turns red when the tire needs air.

A more important example of revenues growing from attacking consumer problems is Wal-Mart’s increasing venture into health care. The $4 generic prescription program now accounts for 38% of the prescriptions filled by the company and is estimated to have saved consumers $350 million. Nearly 30% of those drugs have gone to people without health insurance. The company is in the process of adding clinics to some of its stores; it estimates that within five to seven years it may have as many as 2,000 of these clinics, which will reduce the burdens on local emergency rooms. It is partnering with local hospitals in this venture, which is proving not only beneficial to customers but also an addition to the bottom line.

As exciting as such initiatives may be, the core problem and benefit to Wal-Mart when turning to such programs is the sheer size of the company. As one executive pointed out, the growth of sales last year, some $36 billion, is bigger than total sales for most of the Fortune 500. Creating that kind of increment to sales each year is almost unimaginable.

Still, tapping into the gigantic spending on health care in America has considerable potential, as does the waste in areas like packaging. Also, the company still has plenty of running room overseas. As the head of international operations, Michael Duke, said: “What motivates me is the size of the world and the millions and millions of people not being served by a Wal-Mart store.”

I can’t wait until they tackle education.

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