Wal-Mart’s New CEO: McMillon Brings Youth, Global View

Change is coming at the top of the world’s largest retailer.

C. Douglas McMillon will take over the reins at Wal-Mart Stores Inc., the company said Monday.

McMillon, president and chief executive officer of Wal-Mart International will succeed Mike Duke as ceo on Feb. 1, when Duke steps down. The 63-year-old Duke, who is retiring, will continue as chairman of the executive committee, and, in the tradition of his predecessors, will become an adviser to McMillon for one year.

The news comes at a time when Wal-Mart is facing challenges on multiple fronts. Among them: tougher domestic growth as its lower-income customers continue to rein in spending, inconsistent results in its international business and vocal criticism over its treatment of employees from labor unions.

There’s little surprise that McMillon got the nod, according to retail experts, who saw the succession as a contest between McMillon and Bill Simon, ceo of Wal-Mart U.S.

The 47-year-old McMillon rose through the Wal-Mart ranks from a summer job to ceo of Sam’s Club to head of the important International division.

“Doug McMillon was being groomed for this for years,” said Robin Sherk, director of retail insight at Kantar Retail. “Doug has more experience across the three big verticals at Wal-Mart [U.S., Sam’s and International].”

“International is clearly the biggest upside for the Wal-Mart business as a whole,” said George Anderson, a retail analyst. “Wal-Mart is well developed in North America. In years to come, much of the company’s growth will come from outside the U.S. Doug’s experience there will be very helpful.”

McMillon will be the fifth ceo to lead Wal-Mart since the company’s inception. Like his predecessors, he possesses the most important qualification — he’s a homegrown talent. He’s also a poster boy for rising through Wal-Mart’s ranks. In 1984, McMillon began his career at Wal-Mart as a summer associate in a distribution center. While pursuing his M.B.A. in 1990, he rejoined the company as a buyer trainee in a Tulsa, Okla., store. Wal-Mart is pointing to stories such as McMillon’s as it tries to deflect allegations that it provides poverty level wages to associates and show that there’s indeed opportunity to rise within the company.

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“Wal-Mart struck a perfect balance by going the home-grown route, but with a candidate who’s got youth on his side and a youthful way about him,” said Carol Spieckerman, president of NewmarketBuilders. “He presents himself in a very progressive way. Doug is someone who rose through the ranks through the store level. Wal-Mart is saying, ‘You can build a career from the stores to the c-suite.’ That’s a very powerful and reinforcing statement when Wal-Mart is promoting employees.” Last week, Wal-Mart said it will elevate 25,000 associates between November and January.

McMillon’s record as ceo of International hasn’t been stellar, but the division has been the engine fueling the Wal-Mart machine. Under his tenure, Wal-Mart International acquired Massmart Holdings in South Africa and Yihaodian in China; shut down its businesses in Germany and South Korea; exited India; repositioned in Japan, and fought competitors in the U.K., where its Asda nameplate is said to be on the cutting edge of food delivery.

In the recent past, corruption allegations have rocked Wal-Mart in Mexico, China and Brazil. Investigations are still ongoing and fines are piling up. In May, Wal-Mart said it spent $73 million on matters related to investigations into whether it violated the Foreign Corrupt Practices Act. That came on top of the $157 million it spent in fiscal 2013 on FCPA-related issues. The company is being investigated by the Securities and Exchange Commission and the U.S. Department of Justice regarding the FCPA, while Wal-Mart itself is looking into its operations in Brazil, India, China and Mexico.

While the charges arose under McMillon’s watch, the implications haven’t affected his reputation. Some experts believe the events date back to Duke’s tenure, who was vice chairman of the company from 2005 to 2009 with responsibility for Wal-Mart International.

Wal-Mart has also found itself engulfed in the controversy about workers’ rights in the wake of factory tragedies in Bangladesh that claimed the lives of more than 1,200 garment workers this year.

John Zolidis, an analyst at Buckingham Research Group, described McMillon as a “great choice” to lead Wal-Mart as it increasingly looks to overseas markets for growth with the U.S. market “near saturation.” In addition to his involvement with numerous acquisitions outside the U.S., including Yihaodian and Massmart, McMillon “has managed the transition to ‘everyday low price’ and implemented ‘everyday low cost’ in several key markets, including China and Brazil. He has also further integrated systems and operations across the company’s procurement, distribution and merchandising. Beyond that, he has faced other challenges including those presented by dynamic global economic conditions across a diverse array of markets and the company’s efforts to improve and upgrade compliance following FCPA investigations.”

Spieckerman called the Yihaodian acquisition “huge.” Wal-Mart last year raised its stake in the Chinese e-commerce company to 51 percent — a testament to how seriously the retail giant is in developing its online platform in the country. Technology in general is going to be “the big opportunity and long-range opportunity for Wal-Mart,” she said. “That’s where his age comes in. He’s going to drive continuity to where Wal-Mart becomes a global leader in multichannel retail. A lot of the strategy, in addition to amazing digital experiments and initiatives launching at the same time, hinges on learnings from the international market. McMillon marries his understanding of the international business with Wal-Mart’s strides and innovations in e-commerce. No other retailer is talking about global e-commerce.”

Another challenge continues to be Amazon.com, particularly since the online giant’s recent announcement that it will begin delivering on Sundays. “Wal-Mart will continue to see them as a very big competitor and something that has to be dealt with,” said Anderson.

Wal-Mart’s forays into different concepts and different sized retail formats also owe a debt to International, Spieckerman said. “The international markets informed the multiformat strategies and small formats,” she said. “They have to be leveraging insights they’re gaining from the international business in terms of running efficient small format stores. The hyper-localized proposition also comes from international markets. You have to figure out how to make a single store resonate with a neighborhood, not just a superstore resonating with a region. There’s a lot more interplay between international and domestic.”

Wal-Mart’s shareholders had a muted response to the planned transfer of power at the retailer, pushing its stock up 0.8 percent, or 62 cents, to $80.43 — leaving the company with a market capitalization of nearly $262 billion. The welcome for McMillon was warm enough, though, as the stock hit a new all-time high of $80.57 in midday trading.

The retailer has a big base to work off of, so growth doesn’t come as quickly as it did when Sam Walton was building the business. For the nine months ended Oct. 31, Wal-Mart’s earnings inched up 1.7 percent to $11.59 billion, as revenues also gained 1.7 percent, to $346.59 billion.

Analysts project the company’s fourth-quarter earnings per share will dip 1 cent, to $1.66. The company projected that comparable-store sales in the U.S. discount division would come in relatively flat for the quarter.

Ian Gordon, equity analyst at S&P Capital IQ, wrote in a research note that the move reflects what he termed “ordinary succession planning” by Wal-Mart. “We note Mr. Duke’s age, 63, compared to the prior two ceo’s who left the position at 59 [H. Lee Scott] and 64 [David Glass],” Gordon said. “Further, we believe he was only expected to hold the role for five or six years. We like Mr. McMillon’s significant experience throughout the company and do not foresee any meaningful changes in strategy.”

“Mike was sort of a place holder,” Sherk said, noting that McMillon was being prepped for the job.

Duke leaves behind a legacy that includes reinvigorating the productivity loop and delivering strong financial performance. During his tenure, the company made critical investments in talent and technology with @WalmartLabs in California’s Silicon Valley. He also made a commitment recently to manufacturing in the U.S. and was committed to advancing women throughout the organization.

Walter Loeb, president of Loeb Associates, said Wal-Mart “needs innovative merchandising ideas right now. The domestic scene has been fairly flat and not innovative. The challenge this year will be for Wal-Mart to get more customers into the store. Doug is a merchant. The most important thing is for the company to become more youth-oriented and fashion-oriented and move away a little from the durables side of the business, he said. “There will probably be more emphasis on smaller stores. There’s more opportunity to expand them more quickly. The huge Supercenters we’ve seen are difficult to develop today.”

“Wal-Mart’s business is at a crossroads,” Spieckerman added. “This is a time when the company could use a good jump-start, a youthful jolt, an infusion of new thinking. Maybe this period is characterized by a lack of energy. The timing for the announcement could be good based on that. The business isn’t abysmal, but it isn’t setting the world on fire.”

McMillon’s successor in International will be named by yearend, Wal-Mart said. There was speculation that David Cheesewright, president and ceo of Wal-Mart EMEA with responsibility of sub-Saharan Africa, Canada, Europe and the Middle East, is a front-runner. Scott Price, president and ceo of Wal-Mart Asia, has also been mentioned. “David works in sub-Saharan Africa in a pretty stable market,” Shrek said. “I see David Cheesewright as the most likely candidate.”

Others pointed to Judith McKenna, executive vice president of strategy and international development for Wal-Mart International. She was recently chief operating officer of Asda in the U.K. Some said leaving Asda for her new position is an indication that she may be in line for the International ceo job. “Here’s someone who left a gaping hole at Asda where she was the star and heir apparent to becoming the ceo of Asda. She doesn’t have a logical replacement in the Asda business. She was given a lot of acclaim for deftly negotiating the acquisitions Asda made,” Spieckerman said.

The question of whether Simon stays at the company after being passed over for the top job remains. “If Wal-Mart wants him to stay, they’ve already put measures in place to lock that down,” Spieckerman said. “Does he think the ceo position will be his in the next round? He wouldn’t be hurting for other opportunities.”

Said Sherk: “What happens with Bill Simon? He has a long history of working at different companies. It wouldn’t be uncharacteristic for him to try something new.” Simon joined Wal-Mart in 2006 from Brinker International, where he was senior vice president of global business development. Prior to Brinker, he was secretary of the Florida Department of Management Services, appointed by then-Gov. Jeb Bush. Simon was also president of Diageo Southeast and president of North America Ready to Drink. He held senior positions with Cadbury Schweppes, PepsiCo and RJR Nabisco.