CEO Doug McMillon on a Changed Walmart in Tough Times
Walmart Inc. is navigating high inflation and the consumer slowdown in all the usual retail ways — managing inventory, focusing on value and the rest of it.
But the retail giant is also in the midst of a years-long transformation that has it looking more and more like something else.
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Doug McMillon, president and chief executive officer, was at the Morgan Stanley Global Consumer & Retail Conference on Wednesday talking up the company’s sales and profits, but also its changes.
“I’ve got some confidence in the top-line growth of the company looking forward and in our long-term algorithm,” McMillon said. “Same is true for the bottom line.
“Why do I feel that way about the bottom line? First one is just opportunities to manage the business better in all the kinds of ways that we do in retail. Maybe more strategically, there’s a productivity opportunity with automation, particularly in our supply chain and how that will affect store operations in particular. And then thirdly, the business model is changing.”
McMillon took the helm at Walmart in 2014 and has taken what was the world’s largest brick-and-mortar retailer and made it into much more of a hybrid, with better e-commerce, a marketplace and interests in finance and health care.
“The thread that you move through as you build a first-party e-commerce business and then a marketplace and then fulfillment services and then add income and then other forms of data monetization creates an opportunity to have higher margins and change the margin mix of the business so that we’re more resilient and more profitable at the same time,” McMillon said. “That work is underway. We’re making some progress as it relates to that. Hopefully, you’ve noticed that in our results.”
But underneath those new connections, Walmart still has a huge retail business, which took a big hit earlier this year as inflation not seen in 40 years clamped down on shoppers, whom in some cases had to choose food over discretionary purchases like fashion.
The pressure has continued, although Walmart has worked through much of its excess inventory.
“This Christmas, if you look at a top-line point of view, we’ll look better because of inflated dollars than it actually is,” McMillon said. “If you look at units and kind of the quality of the breadth of what sells at retail as a retailer, we won’t feel great about the quality of this Christmas.”
But Walmart has been pulling in more higher-income consumers — as often happens when times get tougher — and the CEO said it has new tools to hold on to them.
“What’s different now is we’ve got this bigger e-commerce business, 370 million items on the U.S. marketplace,” McMillon said. “We’ve got an app. We’ve got pickup. We’ve got delivery. We’ve got Walmart+. We added Paramount+ to it. So there are other things in place that were not in place in the last cycle that we hope will help us retain more customers.”
If all of that — plus Sam’s Club and a big international business — sounds like a lot of moving parts, it is. But McMillon said the company has in other ways simplified.
“We exited Brazil, the U.K., Japan, Argentina, that’s happening,” he said. “If you look at our business, our portfolio, we’re actually in a different set of businesses than we were a few years ago.
“We kind of subtracted and then we added back a tremendous growth opportunity in India with financial services and an e-commerce marketplace business, which as we said when we bought it, would put pressure on earnings for a while. And it has. But every time we raise money for those businesses, the valuation has gone up,” he said. “And it looks like a really good business, not only from an investment point of view but just from an operational point of view.”
