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Analysts question Wal-Mart execs on the new change and innovation focus

story by Kim Souza
ksouza@thecitywire.com

For several years the central message and mission around Wal-Mart’s business strategy was growth, leverage and returns. Analysts from around the country noted a different message at this year’s annual shareholder meeting held Friday (June 6) in Fayetteville.

The notion of change and growth through tech innovation at the expense of lower returns in the midterm was constant throughout the speeches from Wal-Mart’s top executives over the past two days. CEO Doug McMillon, who also addressed the media following the Friday’s meeting, said in this new role assumed in February that he was able to let go of things that happened in the past as the leader of a complex international business and was given the freedom to think about what could be for the world’s largest retailer,

“I have tried to approach this role with high energy, while looking forward to many new possibilities,” he said. “Our people are going to be the magic that makes it happen.”

McMillon said change is inevitable and Wal-Mart, though a large company, is nimble enough to flex its offerings to fit what customers want and need – which is key to continued retail success in an ever-changing world.

“Retail has moved from a push system — where we pushed goods out to stores in hopes that you would buy — into to a pull system where consumers are pulling us along  and telling us what they want and where,” McMillion said.

When Wal-Mart sees something operationally that works well in a test phase the company must be ready to accelerate the pace and work with a sense of urgency to deliver, McMillon said.

“I would like to move a little faster, but not in a reckless manner,” he added.

Neil Ashe, CEO Wal-Mart Global eCommerce, said the talent the retailer has amassed in its WalmartLabs division is raising the bar on reducing cycle times for new platform and program launches from two years down to 20 days, something they recently accomplished on a technology platform for Sam’s Club members.

Bill Simon, CEO of Walmart U.S., said the retailer accelerated its new store projects by 150 additional units in the same fiscal year they were announced. 

“We have to be about the new and the now, and adding 150 additional stores within a year is pretty significant evidence that we move quickly to acceleration when it makes sense,” Simon said.

He was asked to define the limits that Wal-Mart’s infrastructure could handle in terms of speedy expansion. He said adding 300 smaller formats and 150 supercenters and remodels this year the retailer is likely pushing the limits. In a build-to-suit program with the neighborhood markets, Simon said the constraints will be in talent.

Simon was asked if these small formats are a game-changer for a retailer with 4,000 large stores in the U.S. alone.

“If there are 300 of these small stores in the universe it’s not very exciting, but if there is 2,000 (his vision) it gets much more interesting,” Simon said.

This change and tech innovation doesn’t come cheap. In terms of tech talent acquisitions last year the costs shaved 11 cents from the annual per share earnings. This year the company tagged 2 cents to 4 cents in per share earnings which will be sacrificed for more e-commerce acquisitions and growth opportunities in future quarters.

For the top Fortune 500 company, every cent earned or forfeited is highly scrutinized by Wall Street each quarter, but execs with the retailer and emerging tech company say investments in the “now” will be key to their broad goal of seamlessly merging the physical and digital retail worlds.

An analyst also asked if this constant catering to every consumer whim would likely be detrimental to margins in the long run. McMillon said his gut reaction about the investment payoff in the long term is positive because of operational efficiencies that are gleaned overtime. But it’s the mid-term — three to five years — that are the hardest to read as the company goes through transition with many new formats and delivery options.

“It’s not returns that I am worried about. We are a strong company and the returns will be okay overtime. I am concerned to make sure we are positioned for growth and executing what we have today. As long as we take care of that, I think these returns are going to work themselves out,” McMillon said.

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When asked what was the most challenging aspect of his new role, McMillon told an analyst in attendance that he has been quoting him since October after a brief conversation the two had at the retailer’s annual analyst meeting.

“In years past when you visited Wal-Mart you said you saw leaders, but now what you see are managers,” McMillon shared. “Had we gotten so big that it took all of our time to manage that there was no time left for leading change?”

Continuing, McMillon said: “That question stuck with me, and it’s clearly one of the most challenging aspects of this new role. As a leadership team we have begun making time to collaborate on central issues and we all contribute so that when we reach the solution it is much better than any one of us could have reached on their own. We are looking forward more today than we have in the past two or three years,” McMillon said.

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