NEW YORK (Reuters) - Wal-Mart Stores Inc, which is gaining market share amid a global economic downturn, said Lee Scott will retire as chief executive early next year and will be succeeded by Mike Duke, who heads its international operations.

Wal-Mart's Lee Scott (L) and Mike Duke in a combination image. The world's largest retailer said Scott will retire as chief executive early next year, and will be succeeded by Mike Duke, who heads its international operations. REUTERS/Combination

The world’s largest retailer also promoted Eduardo Castro- Wright, 53, a rising star at the helm of its U.S. operation, to vice chairman, effective immediately.

The surprise announcement on Friday, landing one week before the crucial Thanksgiving holiday shopping weekend, comes as Wal-Mart builds on its strength as a discount retailer in a contracting U.S. economy.

Duke, 58, who will become Wal-Mart’s fourth chief executive officer, also takes over as the retailer increasingly looks overseas to fuel expansion as U.S. growth slows.

“Some of you might be wondering why we are making the change at this time,” Chairman Rob Walton said in a memo to employees. “I think Lee said it best when he told me, ‘This is a great job, but you can’t do it forever and at that point you have an obligation to find the right time for a transition’.”

Walton, son of Wal-Mart founder Sam Walton, said he was “confident that the strategy we have in place is the right one for future success and Mike has been actively involved in developing and executing this strategy.

The CEO change is effective February 1, 2009, Wal-Mart said.

Analysts said the succession plan is being outlined as Wal-Mart gets back on track, boosting profits by persistently focusing on low prices.

“I think it’s good. I’m happy to see it,” said Joseph Feldman, an analyst with Telsey Advisory Group, of Duke.

Feldman said the timing of the announcement was “a little strange,” but recalled that, at Wal-Mart’s analyst meeting in October, there was almost a sense that Scott was saying farewell and “finally had the upper hand over Wall Street.”

He said Castro-Wright’s promotion could also signal the executive as a future CEO candidate.

“Wal-Mart is pushing well over $400 billion in sales,” said Thomas Nyheim, portfolio manager at Christiana Bank & Trust. “Their business model is probably the only one that’s working.”

Wal-Mart shares rose 2.3 percent to $51.81 in afternoon trading.

ROCKY TENURE

Scott, 59, has served as CEO since January of 2000, with much of his tenure marked by struggles and a stagnating stock price. From 2000 through 2007, the company’s stock fell 31 percent, with most of the drop coming shortly after his promotion. The stock is up 6.7 percent year-to-date and has outperformed a nearly 49 percent slide in the Standard & Poor’s 500 Index.

When the U.S. economy was roaring along, Wal-Mart found itself losing out to trendier stores such as Target Corp and constantly under attack from groups that accused it of mistreating employees and driving competitors out of business with its massive expansion plans.

“Lee Scott has made life harder for Wal-Mart workers,” said David Nassar, executive director of Wal-Mart Watch, a union- backed group critical of the retailer. Scott’s policies have “diminished Wal-Mart’s reputation and hampered its ability to grow,” he said on Friday.

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A foray into fashion and higher-end merchandise failed to draw wealthier shoppers and its profit took a hit last year when it cut prices to clear out poor-selling merchandise. Some company-watchers thought at the time that the missteps could cost Scott his job.

But Wal-Mart has returned to its low-cost roots and reined in U.S. expansion, which has paid off as the economy soured and cost-conscious consumers come back to its stores.

Scott, who joined the company in 1979 as an assistant director of logistics, has also tried to portray Wal-Mart as a world leader committed to tackling tough issues like soaring health-care costs and cleaning up the environment.

Scott will remain chairman of the executive committee of the board, receiving an annual salary of $1.1 million, and will be employed through January 31, 2011.

MAJOR IN THE MAJORS

Duke has overseen Wal-Mart’s international operations since 2005 and is fond of saying the retailer should “major in the majors” -- focus expansion on global markets where it can become a big player instead of simply planting a flag.

Under that strategy, the retailer exited its business in Germany and South Korea in 2006 and has pursued growth in countries such as China, Mexico and Canada. Its international operations accounted for almost 25 percent of its $374.5 billion in total sales last year.

Before overseeing Wal-Mart’s international unit, Duke was the head of Wal-Mart’s U.S. operations. He joined the company in 1995 as senior vice president of logistics.

Wal-Mart will announce a new head of international operations by the end of January, when its fiscal year concludes.