In many ways, Doug McMillon will step into the chief executive officer’s job at Wal-Mart Stores (WMT) 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 Walmart’s strengths. To do that, he needs to foster a different mindset in Bentonville, Ark., focusing 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, Walmart was late to the e-commerce party and let Amazon (AMZN) steal the digital thunder. Having recognized that, Walmart has since invested heavily in building a digital presence. What’s perplexing is how little the retail colossus has achieved. While online sales grew 40 percent last quarter, they are likely to reach only $10 billion 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, this is hardly a stunning success. Amazon, for one, is likely to generate sales of $75 billion in 2013. Some of that will come in such areas as Web services, but there’s no reason Walmart can’t find new revenue opportunities online, too.
With its mantra of “everyday low prices” and a famously efficient supply chain, Walmart 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 (FDX) 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 could probably fix by ramping up investment and forging innovative partnerships.
The retailer has an image problem, too, which comes down to the cost associated with being cheap. Right or wrong, many consumers equate Walmart’s low cost with low quality. That may succeed when consumers tend to visit stores, squeezing melons or ensuring that a $20 iron works. The store’s discount image can prompt people shopping in front of computers to default to rival retailers that offers similar prices.
Cheap is also a complicated concept when it comes to groceries, which account for more than half of Walmart’s U.S. sales. What draws people to online alternatives such as Fresh Direct isn’t so much cost as the convenience of getting freshly prepared meals, par-baked bread, and locally sourced organic produce. It displaces restaurant meals as much as it disrupts grocery shopping, making it easier for Fresh Direct to charge a price that covers delivery costs. Ditto for Peapod (AH:NA), which is miles ahead of Walmart in having a cool mobile app and even interactive billboards in subway stations that let pedestrians shop on the spot.
What can Walmart do to compete? To start, McMillon could radically increase the speed and volume of investments online. Last month, Walmart 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. Making “me, too” moves like establishing a Silicon Valley outpost or building fulfillment centers isn’t going 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 village greens for fashion shows, seminars, or even pet training (in the case of Unleashed), Walmart’s big-box locations seem largely limited to selling. Yet each Walmart is practically a village in itself, with banking, tax prep, health care, and other services. Imagine the potential for e-learning, financial literacy, wellness, and further content that could live online.
The biggest hurdle to winning the digital war may be Bentonville itself. The Web functions on transparency; Walmart, unfortunately, does not. he company is opaque in the realm of commerce—with no mention of prices or products beyond its walls—and in addressing corporate issues such as workers’ wages. While its size and perennial pursuit of cheap makes it an easy target, Walmart isn’t the only employer paying low wages. Amazon’s Jeff Bezos has to contend with those issues, too, and service-sector jobs rarely pay well.
Walmart has also been ahead of the curve in areas such as 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. Walmart’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 battle with critics like Ashton Kutcher on Twitter (TWTR).
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 Walmart needs.