In many ways, Doug McMillon will step into the CEO job at Wal-Mart Stores with the wind at his back. As the Walton family’s choice to replace Mike Duke on Feb. 1, he has the backing of stable and loyal shareholders. The U.S. economy is recovering, despite the frozen political tundra in Washington. The retailer’s ho-hum sales growth this year will make it easier to improve on past results. And investors reacted favorably to Monday’s announcement of his promotion, pushing up the stock price.
Still, McMillon has some well-chronicled challenges to address, from an increasingly competitive retail landscape to the collateral damage of bribery allegations in Mexico. That could mean he starts out playing defense. Let’s hope not. McMillon has an even bigger opportunity to build on Wal-Mart’s strengths. To do that, he needs to foster a different mindset in Bentonville and focus more sharply on a few areas. The biggest and most pressing challenge: figuring out how to win online.
The world’s largest retailer has an underwhelming record on the digital front. Yes, Wal-Mart was late to the e-commerce party and let Amazon steal the digital thunder. Having recognized that, retail giant has since invested heavily in building out a digital presence. What’s perplexing is how little it has achieved. While online sales grew 40 percent last quarter, it’s likely to account for only $10 billion in sales this year. For a company that’s expected to ring up $480 billion in sales by the time its fiscal year ends on Jan. 31, that’s hardly a stunning success. Amazon, for one, is likely to generate sales of $75 billion in 2013. Some of that will come areas like web services, of course, but there’s no reason Wal-Mart couldn’t find new revenue opportunities online, too.
With its mantra of “everyday low prices” and a famously efficient supply chain, Wal-Mart should be unbeatable in cyberspace. It’s not. One reason could be that its logistics operations are largely focused on serving its bricks-and-mortar stores. Anyone who has dealt with the inconvenience of having to pick up goods at a store or FedEx location will know what I mean. The website itself is also oddly clunky and impersonal while Amazon greets users like a familiar friend. That’s something McMillon can potentially fix by ramping up investment and forging innovative partnerships.
The retailer has an image problem, too, and it comes down to the cost associated with being cheap. Rightly or wrongly, many consumers equate Wal-Mart’s low cost with low quality. That may be OK when you’re standing in a store, able to squeeze the melons or check if that $20 iron actually works. When sitting in front of a computer, it can prompt people to default to another retailer that offers a similar price.
Cheap is also a complicated concept when it comes to groceries, which account for more than half of Wal-Mart’s U.S. sales. What draws people to online alternatives like Fresh Direct isn’t so much the cost as the convenience of getting freshly prepared meals, par-baked bread, and locally sourced organic produce. It displaces restaurant meals as much as grocery shopping, which makes it easier for Fresh Direct to charge a price that covers delivery costs. Ditto for Peapod, which is miles ahead of Wal-Mart in having a cool mobile app and even interactive billboards in subway stations that let pedestrians shop on the spot.
What can Wal-Mart do to compete? To start, McMillon could radically increase the speed and volume of investments online. Last month, Wal-Mart announced two new fulfillment centers that will create 600 full-time jobs. That’s great, except Amazon seems to make announcements like that every month. Given the speed of disruption in online retail, McMillon needs to think in billions, not millions. This is a company that sells half a trillion dollars of goods every year, after all. “Me, too” moves like a Silicon Valley outpost or fulfillment centers isn’t going to be enough to move the needle.
McMillon also needs to make better use of his bricks-and-mortar assets. For all the talk about turning its 11,000 store locations into distribution centers, remarkably little has been done. Take a look at your local Walmart. If there’s a designated area for e-commerce shoppers to pick up goods or compare prices, I haven’t seen it. While other retailers are using their stores as a village green for fashion shows, seminars, or even pet training (in the case of Unleashed), Wal-Mart’s big-box locations seem largely limited to selling. And yet each Walmart is practically a village in itself, with banking, tax prep, healthcare and other services. Imagine the potential for e-learning, financial literacy, wellness, and other content that could live online.
The biggest hurdle to winning the digital war may be Bentonville itself. The web functions on transparency, and Wal-Mart unfortunately does not. It’s opaque in the realm of commerce–with no mention of prices or products beyond its walls–and in addressing corporate issues like from workers’ wages. While its size and perennial pursuit of cheap makes it an easy target, Wal-Mart isn’t the only employer to pay low wages. Amazon’s Jeff Bezos has to contend with those issues, too, and service-sector jobs rarely pay well.
Wal-Mart has also been ahead of the curve in areas like sustainability. Yet it’s more vilified than celebrated, in part because of a closed culture that seems reluctant to engage with the outside world. Media relations consists more of fielding calls than making them. Wal-Mart’s senior executives don’t blog and are rarely quoted. The company is faceless in social media, which can turn comical when it gets into a Twitter battle with critics like Ashton Kutcher.
As management pundits will tell you, the only way to shift that kind of mindset is to start at the top. At 47, McMillon has support and presumably a long runway ahead of him. He could be the digital evangelist that Wal-Mart needs.
