Even as Wal-Mart Stores Inc. closes in on $500 billion in annual sales, CEO Doug McMillon wants the company to rethink how it measures success.
With more than 11,000 stores in 28 countries, Wal-Mart has a vast global reach. It employs more than 2.2 million worldwide, and the Bentonville company's 1.3 million U.S. employees makes it the nation's largest private employer. But even those larger numbers, traditionally a sign of Wal-Mart's dominance, are no longer satisfying.
McMillon told analysts during the retailer's annual investor day Thursday that the company needs to shift its focus away from sheer size. Simply having eye-popping revenue numbers and a larger stockpile of stores and employees than its competitors isn't enough as the 53-year-old company fights for relevance in today's retail marketplace.
"Being the biggest and being the best are not the same thing," McMillon said. "We've got to be the best. ... It's meaningful to me personally that the company crossed the 50-year mark a couple years ago. Mentally, I'd like to know the company will be here in 50 years and be relevant. To manage that, we've got to manage the next five well."
McMillon and other Wal-Mart executives laid out their plan for the next three years during the meeting. What generated the bulk of the headlines in the aftermath of the presentation was the way investors reacted to news that fiscal year 2017 would bring anywhere from a 6-12 percent decline in earnings per share.
Share prices dropped more than 10 percent, earning the bulk of the attention on a day that Wal-Mart outlined its plan for future growth. McMillon and CFO Charles Holley noted the company would generate net sales growth between 3-4 percent or between $45 billion and $60 billion during the same 3-year span.
That top-line revenue growth, McMillon said, would eclipse the combined revenue of Netflix, eBay, Whole Foods and Starbucks. Still, Wall Street reacted negatively and Wal-Mart stock was trading below $60 a share for the first time since 2012.
In order to satisfy investors and generate bigger profits Wal-Mart is placing a priority on improved store operations, online sales and a further blending of the two. Growth in China, a country McMillon said will generate 25 percent of total retail growth the next five years, also is a priority.
McMillon also told investors that the company is willing to grow by getting smaller. He noted that Wal-Mart has not been afraid to sell off assets in the past if the company felt they weren't performing well or were complicating matters for the company.
A year ago Wal-Mart shut down 30 underperfoming stores in Japan. Wal-Mart sold off a restaurant chain it operated in Mexico for $626 million in October 2013.
Wal-Mart is exploring its options, but investors should only expect the retailer to sell off assets when it makes financial sense. Edward Jones retail analyst Brian Yabrough said he expected the company, under new CFO Brett Biggs, to do a thorough review of its assets, including the stores it operates in international markets.
Beyond Wal-Mart U.S., global e-commerce and operations in Mexico, Canada and China, Yabrough said the company will likely consider changes. That review would include Sam's Club and the additional 24 international markets where Wal-Mart has operations.
"McMillon sent the message that they don't care about having the highest revenue number or the largest amount of stores. They care about being the best and having better profitability," Yarbrough said. "That's the way I read it. I think you could see them look at a number of places, but international seems to be the most likely place you'd see them make changes. They've done it before."
During its second-quarter earnings call in August, Wal-Mart reported solid performance for its operations in Canada and Mexico. Other major markets such as the United Kingdom, Brazil and China posted negative same-store sales numbers, and overall operating income declined 1.5 percent for Wal-Mart International.
Holley said the company will trim about $500 million from its capital expenses internationally in the next fiscal year. Wal-Mart has spent $3.5 billion the past two years on capital expenses outside the U.S. and is scheduled to spend $3 billion in fiscal 2017.
Store construction in the U.S. also is slowing down for Wal-Mart.
During its 2015 fiscal year the retailer opened 375 new or remodeled stores. It will bring up to 252 stores online this fiscal year and for the 2017 fiscal year, which begins Feb. 1, has forecast between 142 and 165.
Supercenters, once built by the hundreds annually, will grow between 50 and 60 in the upcoming fiscal year. Small format stores, primarily Neighborhood Markets, will be cut from 235 opened in fiscal year 2015 to fewer than 100 in the upcoming fiscal year.
McMillon will hit the two-year mark as CEO on Feb. 1. Still, Stephens Inc. retail analyst Ben Bienvenu said it appears McMillon's review of the business is in its early stages.
"They're still drilling down into the business," Bienvenu said. "I think they have their hands around it enough to provide the guidance they did today, but I think they're still peeling back the layers of the onion. It's not a huge surprise to hear them float the idea of scaling back international. I've heard that for a while now, but it is interesting that he mentioned it outright, or at least implicitly."
McMillon's vision for a leaner Wal-Mart has also played out in its corporate headquarters. Wal-Mart laid off 450 employees at its home office on Oct. 2 after months of McMillon talking about the importance of moving faster and making quicker decisions.
Agility is more important to the Wal-Mart CEO over the next three years than sheer size. McMillon views being more nimble as key to the retailer fending off challenges from general merchandise stores, grocery chains and pure e-commerce businesses.
"Wal-Mart is uniquely positioned to win the future of retail," McMillon said. "We have a combination of strengths and assets to build on and we're preparing for the future. Our investments in people, our stores and our e-commerce capabilities are the right ones.
"We all know retail has changed. It will continue to change at an accelerating pace."
SundayMonday Business on 10/18/2015