Profile: Judith McKenna, CFO of Asda

Judith McKenna, CFO of Asda

Judith McKenna, CFO of Asda

With 2006 revenues approaching $350bn, a shade under two million employees
and 180 million customers spending money with it every week, Wal-Mart is a
retail operation without equal. So, when in 1999 it cast a beady eye over Asda,
the UK’s second-largest retailer, its then directors would have reacted with
mixed emotions.

After all, it’s impossible not to respect a lion ­ but would you really want
to come face to face with one?

The eventual digestion of Asda gave Wal-Mart a footing in the UK supermarket
sector, but it also handed the British company access to the highly successful
Wal-Mart formula ­ a formula which has resulted in the American retailer’s
global revenues almost tripling since 1999.

So far, that formula is, well, doing okay. While Asda has overtaken
Sainsbury’s to tentatively adopt second place, Tesco has shown greater agility,
a better strategic vision and far more aggression to secure first place, with
2005 UK revenues about twice those of Asda. But, according to its chief
financial officer, Judith McKenna, this is of no great importance. ‘The aim is
not how big we are, the aim is how good we are so that is what we absolutely
focus on,’ she says.

How Sam Walton, Wal-Mart’s hands-on founder who died in 1992, would react to
assertions that size doesn’t matter is unclear. His vision was simple: build ‘em
big. As it is, not only has Asda fallen far behind Tesco in the UK, it appears
that Tesco is also going after Wal-Mart’s home turf, with an audacious expansion
into North America already underway.

Nevertheless, McKenna is unruffled. ‘It’s absolutely not about the size, it’s
about the best,’ she says. ‘And it’s about one store at a time. One of the
reasons why it has been successful at managing an organisation that’s as big as
it is, is because it’s concentrated on being good at every store, as opposed to
being the biggest that you can be. The best thing to do is not worry about what
anybody else is doing.’

In many ways, this reflects the financial world’s view of Asda since the
acquisition. Having de-listed from the London Stock Exchange, the attention of
investors, analysts and journalists went elsewhere ­ in effect, Asda fell off
the financial radar. But, as McKenna says, ‘We might have lost a bit of weight
and authority with you guys and the City, and we have a job to do to manage
that, but the most important people are the customers… You have to be really
careful not to be too worried about your public image from a finance

Private advantage

Indeed, the very fact that Asda is no longer a public company offers the
company several advantages over its rivals. If, for example, you were wondering
why we compared Tesco and Asda’s 2005 performance, it’s because by the time we
went to press they were the most-recent available figures. Private companies are
given 10 months to file their accounts with Companies House, meaning 2006
figures only be available at the end of October 2007. Consequently, financial
comparison between public companies and their private company competitors is
relatively difficult.

Also, and perhaps more importantly, private company accounts need have no
narrative reporting to go alongside them, removing the requirement for company
directors to divulge potentially commercially-sensitive, strategic information,
such as target markets and predictions for growth, to the competition.

Mckenna remains philosophical. ‘It’s a double-edged sword,’ she says. ‘As a
finance person, I like the fact that we don’t tell anybody anything. However,
not being able to talk to the public as much about the things that we’re trying
to do and get to analysts… it can be difficult to get your message across.’ To
combat this, Wal-Mart hosts analyst days in the US to which UK analysts are also
invited. And Asda itself holds communication days for UK-based journalists.

So, the Wal-Mart acquisition has resulted in British retail analysts hopping
on 747s and crossing the Atlantic to listen to Wal-Mart’s vision. Coming the
other way? Onerous regulation and compliance.

‘It’s not easy,’ says McKenna. ‘Would you choose to go through
Sarbanes-Oxley? No you wouldn’t.’ To make sure it was turned into a positive
experience for Asda, however, rather than merely an onerous compliance exercise,
McKenna and the Asda board used it as an opportunity to ‘do a clean sweep’.

‘It was onerous to do the documentation in a very prescriptive way, but it
was a good chance just to double-check everything and make sure that everything
was in place and in progress,’ she says. Despite this, McKenna insists that Asda
is no ‘more or less’ fraud proof than it was before the legislation came into

But it has not been a waste of time. ‘What it does is make sure you’ve got a
really good, clean bill of health internally. Sarbanes-Oxley makes sure that,
internally, we know that we’re the best that we can be at financial control,
everything is documented, we know where the risks are and we’re controlling them
effectively,’ she says.

From a purely financial perspective, McKenna also had to adopt US Gaap and
she says that the finance team was one of those affected most by the
acquisition. ‘In any organisation that’s a subsidiary, finance has one of the
closest relationships with the parent of any of the functions and it took us a
bit of time to work out exactly how that relationship worked,’ she says. ‘But
it’s a very comfortable relationship now and they let us get on with our job.’

In an organisation of Wal-Mart’s size, reporting lines can become complex,
but she insists that a dotted-line to an international CFO in addition to her
traditional line to chief executive Andy Bond presents no issues. ‘I operate
exactly as you’d expect any FD in any UK company to operate,’ she says.

Post-Enron legislation and accounting standards are not the only things that
have been adopted by Asda from the other side of the Atlantic. Strategy sharing
has been going on since before Wal-Mart became involved and, having been at the
company for 12 years, McKenna has experienced life before and after the

‘Allan Leighton, who was our chief exec at the time, had a very good
relationship with the Wal-Mart people,’ she says. ‘He’d been over several times
. . . So a lot of the culture was already embedded and we were probably the
most-like-retailer within all of the UK to Wal-Mart. So it wasn’t that much of a
cultural shock.’

She says the biggest change was the sudden access to a market in general
merchandise. ‘We were to massively expand our general merchandise work,’ she

New concept

This is probably most visible through a separate concept of the supermarket ­
Asda Living, a chain of stores that are an attempt to break in to the lucrative
home furnishing market and compete with the likes of Next Home and even IKEA.

‘One of the things about Asda is that if you backtrack six years, we had two
formats ­ that was it,’ she says. ‘We then went through a phase of realising
that one of the things we needed to look at was different formats, so we started
experimenting… and researching into a number of things; some of which we knew
would work, some of which we knew wouldn’t work as well, but it was important we
found out what the growth areas could be for the future. What’s come out on top
is ASDA Living.’

One of the ‘experiments’ that certainly didn’t work, was Asda Essentials ­ an
attempt to compete with low-budget stores such as Aldi and Lidl. Asda
Essentials’ strategy was to stock own-brand products ­ a strategy which
ultimately bombed and resulted in the closure of a store.

‘The great thing is that we actually suffered very little for it,’ insists
McKenna. ‘We took a load of learning about customer habits, how they shop,
what’s important to them, what they absolutely need in the shop and what they
don’t need in a shop.

‘We relocated all of our colleagues from that store into other stores . . .
and it was easy enough to clear the stock. I think one of the things is that
you’ve got to be brave and you’ve got to be bold about some of the things that
you try, but don’t do it on so broad a scale that if it’s not quite right you
can’t do something about it.’

With 2005 sales of £14.9bn and earnings of £463m, Asda is performing well
enough. But with Tesco enjoying UK sales of more than £32bn during the same
period it will take many more successful experiments for it to be challenging
the UK’s top supermarket. That is, of course, if size matters.

Property empire building

One of Wal-Mart founder Sam Walton’s traits was to personally fly over US
towns where he was planning on opening a store to look for the most ideal
location. Once he’d recognised a plot situated by a busy intersection, or in
between two heavily populated areas, he would land his plane and buy up the plot
of land. Property was key.

To Judith McKenna, Asda’s CFO, property takes a similarly important position
to her role. She says that putting the store development team together with the
property team delivers ‘some great synergies’.

‘There is a real benefit in owning your own land and your own property. Apart
from anything else, it gives you control over what you want to do with it for
the future,’ she says. ‘It’s not necessarily a bad use of capital to have it
invested in property.’

This article first appeared in the November issue of

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