Wal-Mart Stores Inc. is betting on career insider Doug McMillon who learned the business from founder Sam Walton to revive a company struggling with slowing growth at home and in the international regions he oversaw.
The world’s largest retailer yesterday named McMillon, 47, chief executive officer, replacing Mike Duke, 63, who retires Feb. 1. An Arkansas native, McMillon has held senior-level executive positions in the U.S. and overseas after starting as a worker in a Wal-Mart warehouse almost 30 years ago.
While the new CEO has struggled to boost growth in China and Brazil, his strong knowledge of store operations and consumer behavior may help him improve the U.S. business, said Burt Flickinger, managing director at Strategic Resource Group, a retail consulting firm. His main challenge at home will be reversing an underinvestment in stores that has resulted in inadequately stocked shelves and poor customer service, he said.
“He knows how to do it because he spent most of his Wal-Mart life in retail operations and buying,” said Flickinger, who noted that Duke worked in logistics and distribution before becoming CEO. “The stores have suffered from a lack of investment in people and adequate stocking levels.”
The shares gained (WMT:US) 0.8 percent to $80.43 yesterday, bringing this year’s advance to 18 percent, compared with a 26 percent rise for the Standard & Poor’s 500 Index.
Duke, who took the reins in 2009, approached the board earlier this year saying he wanted to retire and offered to stay on as long as needed, Jim Breyer, who was Wal-Mart’s lead director until June, said yesterday in an interview. The CEO search started in earnest about six months ago and initially included outside candidates, he said. The company has no mandatory retirement age for CEOs.
In the early 2000s, McMillon was introduced at a company party as a shoo-in to run Wal-Mart someday, according to a person who worked with him in the international division and at Sam’s Club. A hands-on and approachable boss, McMillon routinely chatted with employees at their cubicles and played softball with co-workers, said the person, who asked to remain anonymous because he didn’t want to speak publicly about a former employer. McMillon has the common touch required to motivate the rank and file at headquarters, the person said. This may be welcome at a company criticized by labor groups for not providing sufficient pay and benefits.
“Mr. McMillon has a huge challenge on his hands, but there are countless people here in the U.S. and around the globe ready to work with him to make sure that improving working conditions are a number-one priority,” Sarita Gupta, executive director of Jobs with Justice, a labor group based in Washington, said in a statement yesterday.
Earlier this year, McMillon was identified as one of two top internal candidates, people familiar with the matter said in May. Bill Simon, 54, who runs Wal-Mart’s U.S. operations, was the other one. McMillon had an advantage because he’s close to the Walton family, which owns more than half of the retailer’s shares, said three of the people.
Suppliers are applauding his ascension to the top job, said Cameron Smith, president of Cameron Smith & Associates, a Rogers, Arkansas-based executive search firm that works closely with Wal-Mart’s supplier network.
“They think Doug is open,” said Smith, whose firm conducts an annual poll of suppliers who work with Wal-Mart and Sam’s Club. “He listens to them. He shows up at stuff. He is accessible. Some executives have not been.”
Smith also said that McMillon, Wal-Mart’s youngest CEO since Sam Walton, will connect better with younger shoppers.
David Tovar, a Wal-Mart spokesman, didn’t answer a request to make executives available for comment.
A graduate of the University of Arkansas, McMillon was hired at a store in Tulsa, Oklahoma, in 1990 and went on to various positions in merchandising, according to Wal-Mart’s website. From 2006 to 2009, he was president and CEO of the Sam’s Club warehouse division.
“He brings together merchandising, strategic and global, but with roots in the U.S. business,” said David Schick, an analyst for Stifel Financial Corp. in Baltimore. “That’s a pretty nice combo.”
Schick recommends buying the shares.
McMillon then headed the international business, which generated $135.2 billion in revenue last year. That’s about twice the size of all of Target Corp. In 2011 while pursuing a majority stake in South African chain Massmart Holdings Ltd., McMillon described Walton and the company.
“Sam had a lot of wonderful characteristics and today those have become corporate values,” McMillon said in a video posted on YouTube. “He believed, and we believe, in things like respect for the individual, striving for excellence and serving our customers, all on the foundation of integrity.”
McMillon, whose total compensation in the year ended in January was about $9.56 million, will be the fifth CEO since Wal-Mart became a publicly traded company in 1970. Walton was the first, and, ever since he stepped down in 1988, the company has looked internally for its leader. Duke and his predecessors -- Lee Scott and David Glass -- all were insiders with years of experience at the company before taking over the top job.
McMillon will face plenty of challenges as CEO. The retailer is battling assaults from Amazon.com Inc. (AMZN:US) and dollar-store chains on its lowest-price guarantees. Wal-Mart is also probing allegations of bribery in Mexico and possible violations of the Foreign Corrupt Practices Act.
Earlier this month, the chain cut its annual profit forecast (WMT:US) for the second time since August, one of several chains to reduce expectations heading into the fourth quarter. The retailer’s U.S. same-store sales have slid for three straight quarters as a 2 percentage point increase in Social Security taxes reduced spending among its shoppers, many of whom live paycheck to paycheck.
While the company’s low-income customers are among the hardest hit amid persistent unemployment and higher taxes, some of its troubles are self-inflicted. The discount chain has alienated some U.S. shoppers because it doesn’t have enough workers to keep shelves adequately stocked, leading some consumers to decamp to smaller-format stores that offer merchandise starting at $1.
“It’s a balance between growing sales and keeping costs low,” Ian Gordon, an analyst for Standard & Poor’s in New York, said in a telephone interview. Sometimes it weighed too much toward cutting costs and they ended up with issues like empty shelves, he said.
International revenue growth slowed from about 15 percent in fiscal 2012 to 7 percent last year.
The company is accelerating its expansion in China and other emerging markets. The chain said last month that it plans to add as many as 110 stores over three years in China, while shutting some and remodeling dozens more. It has also been working to reintroduce its everyday low price strategy there and in Brazil after struggling to grow robustly in both markets.
“If you look at what Doug’s been doing internationally, he’s returned to the core principles that make Wal-Mart,” said Bryan Gildenberg, a Boston-based analyst for Kantar, a consulting and research firm. “The focus on everyday low price and getting back to the Sam Walton magic. A return to cost leadership. I do think it’s a reinforcement of core principles.”
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