He is the consummate Walmart company man.
Douglas McMillon got his start more than three decades ago at the retailing giant on the ground floor – in fishing tackle. In February 2014, McMillon was named the fourth, and the youngest, chief executive in Walmart’s 53-year history.
And in the past week, McMillon oversaw the biggest one-day plunge in the company’s stock in 17 years after the retailer forecast lackluster sales growth for this year and a steep profit dip for next, in part because of the company’s plan to spend billions of dollars to improve its stores and Internet shopping capabilities. In damage-control mode, McMillon took to his blog to defend his investments.
“The reaction by the market – while not what we’d hoped – was not entirely surprising,” he wrote. “These investments are critical to our current and future success as a company. Simply put, it’s the right thing to do.”
The problems encountered by Walmart did not appear overnight, nor will a solution. The company that once redefined the retail landscape with its cavernous warehouse-like stores that sold thousands of items at a discount – pushing small mom-and-pop stores across the country out of business – now finds itself facing formidable rivals in the digital-shopping arena.
Moreover, its costs are climbing sharply higher at a time when sales are flat. Its stock is down 30 percent this year. This month, it laid off nearly 500 employees from its headquarters in Bentonville, Ark.
With more than $485 billion in annual revenue (just a bit behind the entire economy of Norway), 5,000 stores and clubs scattered around the world and 1.4 million “associates” (employees), Walmart is still the world’s biggest and most profitable retailer by far.
But its size also makes changing course akin to turning around an ocean liner in a swimming pool.
Among some of the needle-moving maneuvers being hotly debated among Wall Street analysts is whether the company should spin off its lower-margin Sam’s Club unit, exit challenging overseas markets or buy an e-commerce player.
Those decisions and many more are in the hands of McMillon, a 49-year-old whose family moved to Bentonville when he was a teenager.
While McMillon was handpicked by the Walton family and is steeped in the Southern conservative stances, traditions and history of the company, his appointment, nonetheless, has represented a generational, cultural and societal shift within the retailer.
In the past year, Walmart has stopped selling confederate-flag merchandise as well as assault rifles, has publicly supported gay rights and, after years of criticism, has raised its minimum starting wage to $9 an hour.
Now, progressives may be cheering, but Wall Street is not. Investors fear that Walmart’s heavy investments in labor, in the Internet and in prices will weigh on the retailer’s short-term earnings – and many are running the other way.
“Walmart expects a return from these wagers,” Michael Lasser, a retail analyst at UBS, wrote in a note. Still, “it’s unclear if its investment of $1.5 billion in labor and ‘several billion dollars’ in pricing will push it ahead of others, or just keep pace.”
Walmart would have an easier time if it were not under siege from multiple directions.
Membership-only warehouse clubs like Costco and hard discounters like Aldi are eating away at Walmart’s price-competitive edge. Hectic lifestyles are driving shoppers to smaller and more convenient dollar stores – even pharmacies – for groceries. Amazon and its vast online catalog, and the advent of seemingly every product imaginable at shoppers’ fingertips, is neutralizing the advantage of Walmart’s supercenter-sized assortment.
But despite declaring a decade and a half ago, in 1999, that it was determined to take on the Web, Walmart has stumbled in its attempts to dominate online as it had brick-and-mortar. In the company’s critical early days online, its insular culture helped drive away a celebrated e-commerce guru. It has been slow to roll out an online grocery store.
All the while, Amazon, armed with algorithms and warehouse robots, has steamrolled the competition online. Walmart’s online sales came to just a sixth of Amazon’s last year. Walmart.com is set to offer 10 million products by the end of the year. That is impressive, until you consider that a shopper will find an estimated 300 million items for sale on Amazon.com. In July, the e-commerce giant surged past Walmart in market capitalization, making headlines as the world’s new most-valuable retailer.
Last year, Amazon sold almost $90 billion worth of products online, compared with just $12.2 billion Walmart sold through its website. E-commerce still makes up only about 2.5 percent of Walmart’s annual sales, and its growth online is slowing. Its peers, however, have hardly done better; Target, for example, gets about 2.8 percent of its sales through its website.
Walmart has promised to marry its fledgling Web operations with its brick-and-mortar footprint of more than 5,000 Walmart and Sam’s Club locations in the United States, allowing customers all manner of options: order online, pick up in store, pick up curbside and home delivery.
But the retailer’s transition to an multichannel operator “is costing more and lasting longer than expected,” said Simeon Gutman, a Morgan Stanley analyst. “Not sure it’s the last time we'll be saying this.”
But for some, it is not surprising that Walmart faces an uncertain future as the middle class is struggling. Though the job market is picking up, wages and income have grown slowly, especially for the typical Walmart shopper with an annual household income of just over $53,000, according to a survey conducted last year by Kantar Retail, a consulting firm based in London. Kantar found that Target’s shoppers tended to make about $12,000 more annually.
Paradoxically, labor groups say that Walmart, as the nation’s largest private employer, shares the blame for America’s ailing middle class. And they say that while it is a step forward for Walmart to increase the pay of its most poorly paid workers, the raise – to at least $9 this year and $10 next year – is not nearly enough.
For the company to attribute its recent woes to higher wages for its workers is gratuitous, said Jess Levin, a spokeswoman for Making Change at Walmart, a campaign to improve working conditions at Walmart backed by the United Food and Commercial Workers union.
“It’s not fair to blame a large profit drop on a $1 billion wage increase,” Levin said. “If you look at $1 billion means to Walmart, it’s a very small fraction of their annual U.S. sales. If they had moved the needle at all on sales, this is a conversation we wouldn’t be having in the first place.”
Walmart is the largest grocer in the Charlotte area by market share, according to sales-tracking firm Chain Store Guide. It has been expanding quickly throughout the region with the Neighborhood Market concept, Walmart’s version of the traditional grocery store. The Observer contributed.