July 9, 2014 by Bill Johnson
Just weeks after being named chief executive of the world’s biggest retailer, Wal-Mart’s Doug McMillon held a meeting with his top executives and gave them a homework assignment: Read “The Everything Store,” the tell-all book about Amazon.com founder Jeff Bezos.
It was a surprising order from the top of a company that long ago devised one of retail’s most successful formulas and milked it for nearly half a trillion dollars in sales last year.
According to the book, Mr. Bezos himself studied Wal-Mart as he built Amazon (AMZN +1.29%), internalizing its credo of acting fast and experimenting often.
But now, with the price gap shrinking between Wal-Mart Stores (WMT +0.73%) and its competitors, the retailing giant faces the double sorrow of sluggish sales and traffic.
In May, the company reported its fifth straight quarter of negative U.S. sales, excluding newly opened or closed stores, and its sixth straight quarter of dwindling traffic. Wal-Mart’s return on investment dropped to 17 percent in the year ended Jan. 31, down from 20 percent seven years ago. The weak results led to the lowest levels of bonuses to executives in several years.
The discounter is also dogged by allegations of bribery overseas, and continues to face regulatory challenges from its nonunionized workforce. It has stumbled in country after country in its attempts to expand overseas, even as it remains a dominant retailing force in countries like Mexico and Canada.
For Mr. McMillon, who at 47 years-old is the youngest CEO to lead the company since founder Sam Walton, the problems of the past are forcing him headlong into the future. Since taking the helm in February, Wal-Mart executives say he has doled out urgent instructions to accelerate new store concepts and online strategies in an attempt to gain back market share from encroaching rivals like Amazon and fast-expanding dollar store chains.
It’s a tall order. “We need to move fast,” the CEO said at the company’s June shareholders meeting. “That’s why we’re piloting so many new ideas.”
Even speed and imagination may not be enough to move the dial meaningfully for the country’s largest company as measured by revenues. To achieve 1 percent sales growth in any given year, the retail behemoth must pull in nearly $5 billion in additional sales.
The U.S. recession had brought some relief, as battered shoppers sought rock-bottom prices. But Wal-Mart’s low-income customers — who spend 18 percent of all food- stamp money at the chain — have been slow to recover.
Some of the retailer’s initiatives — from new store formats to a shift in some pricing models — don’t much resemble the old Wal-Mart, where bigger stores were touted as better, and prices were “always low.”
This year, for the first time in its history, Wal-Mart will open more smaller grocery and convenience-type stores than supercenters. At 10,000 to 40,000 square feet, its Wal-Mart Express and Neighborhood Market concepts are a fraction of the size of a 200,000-square-foot superstore. Stores now double as pickup stations for shoppers to collect televisions, bicycles and other items purchased online.