Nov. 25 (Bloomberg) -- Wal-Mart Stores Inc. said Doug McMillon, head of its international business, will replace Mike Duke as chief executive officer when he retires as the world’s largest retailer struggles to ignite growth at home and abroad.
McMillon, 47, will take over for Duke on Feb. 1, the Bentonville, Arkansas-based company said today in a statement. Duke, 63, will stay on as chairman of the board’s executive committee, and McMillon will join the board immediately.
McMillon, who first worked at Wal-Mart as a summer employee in 1984, is grabbing the reins as the retailer tries to restore U.S. sales growth with Amazon.com Inc. and dollar stores luring away its customers. Overseas, Wal-Mart is accelerating its expansion in China and other emerging markets while probing allegations of bribery in Mexico and possible violations of the Foreign Corrupt Practices Act.
“The biggest challenge is the U.S. domestic economy, how to turn the traffic trends positive and to remain relevant,” Ian Gordon, an analyst for Standard & Poor’s in New York, said in a telephone interview. “Competing in the e-commerce world will be important and keeping their eyes on the rise of the dollar stores.”
Duke approached the board earlier this year saying he wanted to retire and offered to stay on as long as needed, Jim Breyer, who was Wal-Mart’s lead director until June, said today in an interview. The CEO search started in earnest about six months ago and initially included outside candidates, he said. The company has no mandatory retirement age for CEOs.
McMillon had been identified as a top candidate earlier this year, people familiar with the matter said in May. Bill Simon, who runs Wal-Mart’s U.S. operations, was the other leading candidate, yet McMillon was close to the Walton family, which owns about half of the retailer’s shares, said three of the people, who asked not to be identified because the matter is private.
Wal-Mart is now at risk of losing Simon, 54, who isn’t likely to wait to succeed the younger McMillon as CEO, Faye Landes, an analyst at Cowen & Co. in New York, said today in a note.
Duke is the fourth CEO since Wal-Mart became a publicly traded company in 1970. Founder Sam Walton was the first, and, ever since he stepped down in 1988, the company has looked internally for its leader. Duke and his predecessors -- Lee Scott and David Glass -- all were insiders with years of experience at the company before taking over the top job. Duke was named CEO in November 2008 and didn’t formally take the reins until Feb. 1, 2009.
Wal-Mart’s shares gained 69 percent from Jan. 30, 2009, the last trading day before Duke became CEO, through Nov. 22 this year. The Standard & Poor’s 500 Index more than doubled in that time. Wal-Mart rose 0.8 percent to $80.43 at the close in New York today.
Duke did manage to increase Wal-Mart’s earnings as the U.S. economy recovered from the recession. The retailer’s net income of $17 billion in the year ended in January was about 27 percent higher than the year before Duke took over.
“He guided them through a tough time,” David Strasser, an analyst at Janney Montgomery Scott LLC in New York, said today in an interview. “I thought he was going to be a caretaker, and he did much more than that.”
McMillon was hired at a store in Tulsa, Oklahoma, in 1990 and went on to various positions in merchandising the U.S. division, according to Wal-Mart’s website. From 2006 to 2009, he was president and CEO of the Sam’s Club warehouse division.
“McMillon’s tenure at all three divisions -- U.S., international and Sam’s Club -- was a key to his hiring because in a sense it was training for the CEO job,” David Schick, an analyst for Stifel Financial Corp. in Baltimore, wrote today in a note to clients.
The company said it will announce McMillon’s replacement at the international business by the end of its fiscal year. Cathy Smith, who serves as chief financial officer for the division, is an “obvious candidate” for the job, Landes said.
Wal-Mart earlier this month cut its annual profit forecast for the second time since August. The retailer’s U.S. same-store sales have slid for three straight quarters as a 2 percentage point increase in Social Security taxes reduced spending among its shoppers, many of whom live paycheck to paycheck.
While the company’s low-income customers are among the hardest hit amid persistent unemployment and higher taxes, some of its troubles are self-inflicted. The discount chain has alienated some U.S. shoppers because it doesn’t have enough workers to keep shelves adequately stocked, leading some consumers to decamp to smaller-format stores that offer merchandise starting at $1.
Wal-Mart also is trying to catch up to Amazon in its e-commerce prowess. A technical error earlier this month led Wal-Mart’s website to offer excessive discounts, such as kayaks for $11 and computer monitors for $9, that the retailer later canceled.
“The global e-commerce opportunity sits at the heart of his skill set,” Breyer said of McMillon. “So much of the next generation of commerce is connecting stores seamlessly, from an inventory and merchandising level, to mobile phones. I suspect Doug has thought about this as deeply as any retailer in the world.”
Internationally, the company has been working to reintroduce its everyday low price strategy in Brazil and China after struggling to find strong sales growth in both markets. Wal-Mart said last month that it plans to add as many as 110 stores over three years in China, while shutting some outlets and remodeling dozens more. The retailer also named two new managers, in business development and real estate, to its China team last month.
“International had definitely run into its issues,” Strasser said.
The U.S. Department of Justice and the U.S. Securities and Exchange Commission are investigating allegations that Wal-Mart systematically bribed Mexican officials so it could more quickly open stores in the country. Federal and local government agencies in Mexico also are involved in investigations. Wal-Mart has said that it also has started inquiries into potential violations of the FCPA at operations in Brazil, India and China.
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