The Chosen One: McMillon leadership era underway
What’s next for Walmart under the leadership of new CEO Doug McMillon is the focus of the Spring edition of Walmart Supplier News.
Change is in the air at Walmart as the Doug McMillon era begins. No company makes a change at the top out of a desire to maintain the status quo, and McMillon has already indicated there are changes to come.
“Walmart has a long history of embracing change, and this year we’ll make some changes to improve our business,” McMillon said during Walmart’s fourth-quarter call. “These changes will be made with a filter on increasing customer relevance. Customers’ shopping habits are changing more rapidly than ever before. We must be more nimble and flexible as we operate our businesses to adapt to these changes.”
A little more than one month into his tenure as CEO, McMillon has made it clear what won’t change at Walmart are the foundational aspects of the company’s business model. Things like expense control, operational efficiency and every day low prices to help people save money and live better; those things are non-negotiable.
How exactly Walmart alters execution of its value proposition, the eventual composition of the senior leadership team and the strategies they pursue to accelerate growth have yet to be spelled out in great detail, but McMillon has offered some directional guidance. For example, in addition to increasing relevance with shoppers by connecting with them on their terms, McMillon has said he expects same-store sales to improve as Walmart sharpens its EDLP focus and drives increased traffic with merchandise innovation.
“Comp sales improvement is a key priority, and we’ll use a combination of price investment and enhanced service to accomplish this,” McMillon said. “We will also continue to get closer to our customers and provide them with additional shopping options. In the United States, we see a great opportunity to accelerate our small-format store rollout to complement Walmart’s core supercenter fleet.”
Doubling the number of small-format stores that were originally expected to open this year is the biggest news out of Walmart so far during McMillon’s tenure. The company plans to open between 270 and 300 smaller stores, predominantly under the roughly 40,000-sq.-ft. Neighborhood Market banner, versus the forecasted range of 120 to 150 provided last fall. The big increase means Walmart will spend about $600 million more than originally planned on building out a small-store network seen as an important piece of a larger omnichannel strategy. It spent $100 million more than originally planned last year to add 105 Neighborhood Markets stores and ended the year with 346, and it added seven Walmart Express stores to end the year with 20 units.
The small-format expansion feeds into Walmart’s vision of omnichannel retailing in the United States and worldwide. That vision has been gaining momentum ever since Walmart created a Global eCommerce group about two years ago, led by president and CEO Neil Ashe, but McMillon shares the view that Walmart has the potential to transform how it serves consumers globally.
“Our ability to combine online and mobile with the assets of the world’s largest retailer positions us to win at the intersection of physical and digital retail, which is a competitive advantage,” McMillon said. “Over the past year in particular, we have invested more significantly to improve our customer experience and fulfillment capacity.”
Walmart already offers such integrated programs as Site to Store, Ship from Store, Pay with Cash and Scan & Go, and is experimenting with various pickup and delivery options. All the activity costs money, which is why during the past year, Walmart twice increased the guidance it offered to Wall Street regarding its per share investment in e-commerce, which ended up totaling 11 cents a share. The investments in things like a global technology platform called Pangea and three new fulfillment centers have paid off as Walmart global e-commerce sales increased 30% to roughly $10 billion. The company has forecast similar growth this year with sales projected to surpass $13 billion. That’s a big number to be sure, but it represents less than 3% of Walmart 2014 projected sales, leaving ample opportunity for McMillon to pursue the omnichannel opportunity more aggressively.
[caption id="attachment_46754" align="alignnone"]At a Sam’s Club in Fayetteville, Ark., McMillon expounded on the benefits of a recycling plastics.[/caption]
McMillon shared his views on the disruptive forces reshaping society and the retail industry in late January, as well as his decision-making process when he participated in a panel discussion at the World Economic Forum in Davos, Switzerland.
“Creativity and change is what comes to mind first,” McMillon said when asked for his thoughts on the topic of disruptive innovation by panel moderator and Bloomberg television anchor Stephanie Ruhle. “The customer is changing rapidly. What the Internet and technology make possible today and what it will make possible tomorrow is very different than before. Our responsibility is to connect customers with products. How we do that, the speed with which we do it and the price that we do it at is all going to change a lot in the future. Our job as leaders is to navigate from yesterday to tomorrow using what’s possible today. As I think about my job, that transformation is very much on my mind.”
McMillon was joined on the panel by a diverse collection of executives that included Maurice Levy, chairman and CEO of the Publicis Groupe; Paul Jacobs, chairman and CEO of Qualcomm; and Peer Shatz, CEO of the Qiagen life sciences company. What all the men had in common was the fact that their respective industries are being transformed by technology in ways that were unimaginable not that long ago.
In McMillon’s case, he has clearly identified that the way to win going forward is to capitalize on the blurring distinction between physical and digital, and a willingness to invest in capabilities to serve shoppers with rapidly changing expectations. Positioning the company for future growth while managing the core business is one of the biggest challenges facing McMillon in his new role.
“As leaders, we have to be forward-looking. We have to think about who we talk to and what information we put in our minds so we can develop a vision,” McMillon said. “But we also have to think about the role our teams play. Who is working on today, and who is working on tomorrow? How do you make sure that those teams work together in a way that is seamless because at today’s pace, which is extraordinarily fast and probably only going to get faster, you have to be able to do both at the same time. How we manage through the change and disruption so that [we are] ready for the future is a huge issue and a big part of our challenge.”
Other challenges McMillon touched on in Davos with implications for those who have a business relationship with the company related to the coming wave of Internet-enabled wearable devices, the connectivity opportunity those devices afford and privacy obligations they present to responsible companies. On the subject of privacy and transparency, McMillon shared a common sense point of vi