Walmart, CVS and the nature of competition

The word competition gets tossed around a lot in the retail industry as operators talk about market positioning -- who they do and don’t compete with. Oftentimes, companies will refer to direct competitors, but one thing about Walmart is that it has always tended to take the broad view of competition in that any company, no matter how small, who sold anything offered at Walmart was viewed as a competitor.

It not surprising then that Walmart didn’t take kindly to the announcement that CVS, a retailer who sells almost all the same stuff as Walmart, planned to hire former Walmart North president Hank Mullaney to serve as president of CVS’ retail business. Mullaney spent four years at Walmart and after an operational restructuring last year was elevated to a new position that required he sign a non-compete agreement. As a result, Walmart sued CVS minutes after a press release was issued announcing Mullaney’s appointment as their president. Now, Walmart has won a preliminary injunction blocking Mullaney from joining CVS pending the outcome of a hearing scheduled for March.

While Walmart tends to view anyone who sells anything it sells as a competitor, for purposes of Mullaney’s non-compete agreement, “competitors” were defined as retailers with sales in excess of $5 billion.

CVS certainly fits that bills, and according to media reports from the hearing, Walmart argued that if CVS were allowed to hire Mullaney it would gain confidential information about Walmart’s growth strategy and plans for a small format store. However, CVS lawyer Lawrence Portnoy countered that Mullaney didn’t know anything that would be beneficial to his new employer.

If this case makes it to trial it has the potential to set an important precedent in the area of the enforceability of non-compete agreements. CVS is obviously a major Walmart competitor, and Mullaney did sign a non-compete agreement, so on that basis the matter would appear to be cut and dried. However, the world of employment law is full of nuance, and the lawyers at CVS are surely as good as those at Walmart. They read Mullaney’s agreement and apparently came to the conclusion it was unenforceable.

The whole affair makes for some interesting drama in the retail world and has potentially significant implications for others in the retail industry and at Walmart who may be contemplating career moves, but the most interesting aspect is the value Walmart is placing on Mullaney’s knowledge of Walmart’s strategies.

It’s not like Mullaney possesses the formula for Coca-Cola and he’s joining Pepsico or wrote computer code to manage high frequency stock trading activity at Goldman Sachs and he went to another investment bank. He’s an operator who spent four years at Walmart and has knowledge of the company’s plan to open small format stores. Granted, that knowledge is more highly detailed than the vague public references Walmart has made about its desire to open small stores, but knowledge of strategy in the retail world is of little value because it is execution is what matters. Walmart has had designs on operating small format stores for more than a decade.

While a trial in this matter would be entertaining, both sides have an interest in resolving the issue out of court and that seems to be the prevailing expectation. Should Mullaney find himself running things at CVS in the coming months, the eye opener for him is likely to be how much the company already knows about Walmart’s strategy.