CEO is adapting Sam Walton's ethos for the digital age

BENTONVILLE, Ark. — When Doug McMillon, who started his business career as an hourly worker at a Walmart distribution center in 1984, was selected to be president and chief executive officer of the company four years ago, industry observers expressed confidence that he would preserve the ethos established by Sam Walton, the retailer’s legendary founder. Few of them predicted the degree to which McMillon, in protecting that legacy and keeping it relevant, would go in transforming Walmart to meet the demands of a marketplace fundamentally altered by digital technology. For his skill in striking the right balance between the basic principles that enabled Walmart to become the world’s largest company and the innovations needed to stay in sync with evolving consumer preferences, the editors of Mass Market Retailers have named McMillon the publication’s Retailer of the Year.

“Our purpose is constant, our values are constant, but everything else is open to change,” says McMillon, who encountered Walton several times early in his career, including a Saturday morning meeting where he was questioned by “Mr. Sam” about a price rollback he put together for an item called Bait Mate.

“When I moved into the CEO’s role, we said we’re about to go through a lot of change because the world is changing and retail is changing. Not only the amount but the speed of change has to pick up. Before we started down that road we had to determine what’s not going to change. Walmart has a common purpose that stands the test of time — we save people money so they can live better. We have four core values — service to the customer, respect for the individual, strive for excellence and act with integrity — and we always want to support behaviors culturally that maximize them. Everything else is potentially going to change.

“We want to connect customers to product and deliver great value. If they want to buy that online, we’ll ship it to them. If there’s something coming after e-commerce, we’re going to be there after e-commerce. And as long as consumers want stores, we’re going to run great stores.”

McMillon, who is quick to point out that openness to change has been part of Walmart’s DNA since the beginning, acknowledges that by the time he took the reins as CEO there was a need to innovate more aggressively. E-commerce was one area where the retailer clearly had work to do, but the decision was made to begin by fortifying Walmart’s existing strengths.

“As we thought about what we were going to do, the plan that we formulated was to first make sure that our U.S. Supercenters, which provide a tremendous shopping experience and are the foundation of our business, were strong.

“The best way to move forward was to go to the stores and ask the associates what they needed. So we did a lot of surprise store visits, and from store to store the prescription we heard was pretty constant. Associates told us we need more hours, we need a higher starting wage, we’d like to have more department managers, our inventory levels are too high and we’ve gotten away from EDLP [everyday low prices] a little bit. Things like that.”

McMillon and his colleagues listened, making a series of targeted investments that, among other things, improved pay and benefits for store-level employees, established some 200 training academies where workers master new technologies and learn new skills, and honed the value proposition for customers. One of the first and most significant decisions that McMillon made as CEO was to name Greg Foran, a New Zealander heading Walmart’s business in China (one of 28 countries where the company does business), to oversee Walmart’s 4,600 stores in the U.S.

“It was a little comical when the Americans on our team — and I can say this because I am one — asked what makes you think someone who’s not American can lead the U.S. business?” recalls McMillon, who first met Foran while on a retail study trip to Australia, where Foran worked for Woolworths. “But I had seen him lead our operations in China. Walmart’s become a global talent pool, and great leadership and great merchandising and operating skills translate across ­markets.

“Greg is one of the best merchants and operators, best retailers, alive. So it’s not a surprise to me that things have gone well at Walmart U.S.”

Financial results for the third quarter back up that assertion. Same-store sales at Walmart’s domestic stores, excluding gasoline, increased 2.7%. It was the 13th consecutive quarter of improvement by that measure. Comparable-store foot traffic was up 1.5% during the period.

“There’s still a lot of room for improvement,” McMillon says, “but we’ve taken a big step in the right direction by bringing the inventory levels down and getting back to EDLP with fewer ads. One of the things that we’ve been really emphasizing lately is exciting merchandise. As you come into a Supercenter, we want you to find something you didn’t plan on buying and be excited about it. That core merchandising skill, the art along with the science, is something that we’re focused on.”

Raising the level of performance at the U.S. division helped open the way for Walmart to become much more assertive in online retailing. McMillon has seized the opportunity to put Walmart on a path toward a position in omnichannel retailing that rivals its current dominance in the brick-and-mortar world.

“We’re still learning e-commerce, and there’s a lot of room for improvement for us just in fundamentals,” he says. “We’ve come to realize that stores and e-commerce aren’t independent silos; it’s one customer with one experience that is both digital and physical.

“We’re excited about the fact that we’re finding new ways — online groceries is a good example — of putting those two things together. They actually do help customers save time as well as money, and give them access to a broader assortment.”

After years of proceeding by fits and starts, Walmart placed its e-commerce business on the fast track in August 2016 when McMillon decided to pay $3 billion in cash for Jet.com Inc., a burgeoning online merchant headed by Marc Lore, who, in addition to Jet, was involved in the founding of Quidsi, the parent company of Diapers.com, Soap.com and Wag.com. In addition to a robust e-commerce site, the deal brought Walmart fresh ideas and expertise in an area where it had previously struggled to gain traction.

“We were making progress with e-commerce, but we didn’t feel like it was fast enough,” McMillon recalls. “When we met Marc and saw what he was building with Jet, we got excited. We got excited about him as a leader, we got excited about his team and we got excited about the way he thinks about e-commerce. Marc is a merchant using technology to build a business, and that was a connection point for us.”

Jet’s Smart Cart technology was of particular interest to Walmart, dovetailing with its vision of retailing’s future.

“As you think about how e-commerce should work, we want it to be a basket business and not an item business,” says McMillon. “We like to sell baskets of merchandise, since it’s a more cost-effective way for our customers as well as for us. Smart Cart technology enables us to sell a higher number of units per order than what e-commerce had historically delivered.

“We’ll be bringing Smart Cart from Jet to Walmart. It will help customers save money in a transparent, trust-building way, and help the business be more profitable over time.”

Walmart has made rapid strides since Lore started overseeing its e-commerce business following the acquisition. Millions of items have been added to walmart.com, fulfilment capabilities have been strengthened considerably and more closely integrated with the store network, and the pivotal online grocery business has attained critical mass. Consumers are responding favorably to the changes, driving up the company’s online sales 50% in the third quarter. The retailer projects a further 40% gain during the course of fiscal 2019.

Walmart has tremendous upside potential in e-commerce. Many of the 140 million Americans a week who shop its stores don’t grasp the extent of the omnichannel options it offers.

“If you think about how people perceive Walmart, they know we run stores, they know that we stand for low prices, and they have some general sense of what our assortment looks like in a Supercenter,” McMillon says. “We don’t need to enhance that image as much as we need to build a reputation for the new services that we provide. So what we’re trying to do with our communication, both in store and out of store, is to show consumers some of the new things that we’re doing that will cause them to see us in a new light.”

While in some respects the emerging omnichannel business model, which was highlighted in advertisements throughout the holiday selling season, is a departure, it is in keeping with Walmart’s ongoing commitment to find innovative ways to serve the consumer more efficiently and effectively.

“When I think about Amazon and other e-commerce competitors, the first thing that goes through my mind is that the reason they’re doing so well is because customers are responding to what they’re offering,” McMillon says. “What is it that they’re doing that we should be doing better? E-commerce enables you as a customer to have access to an assortment that you wouldn’t have otherwise had in a really easy and convenient way.

“The next thought would be, all right we’re known for value and that’s really important, and will always be really important. But there’s no reason why we can’t find new and exciting ways to save people time. If a retailer can save people both money and time, and match up on the breadth of assortment, you’re probably going to have a pretty good future. It’s not a lot more complicated than that.”

In rethinking Walmart’s business for the digital era, McMillon and his team are adhering to the tradition established by Sam Walton of paying close attention to rival retailers.

“We study competitors to look for things that we might adopt into our business,” he says, “but we also try to understand the root of what it is that the customer is really enjoying and invent around that. In our case, we get to use these 4,600 stores to do it, not just e-commerce. Some of the solutions that are best for customers will require omnichannel capabilities. We’re in a great position to unlock that potential.”