Markets, analysts not surprised by Wal-Mart CEO pick

by The City Wire staff ([email protected]) 150 views 

Retail analysts lined up Monday morning (Nov. 25) to assess what might be behind Wal-Mart’s decision to appoint Doug McMillon as its CEO and discuss their thoughts on what to expect next at the retail giant.

There had been two candidates – Walmart International CEO Doug McMillon and Walmart U.S. CEO Bill Simon – in the running, according to public opinion. The Walton family and the rest of Wal-Mart’s board chose culture and merchant tenure as the two trump cards in McMillon’s hand.

Carol Spieckerman, CEO of New Market Builders, said McMillon’s international experience should be a plus in his role as CEO. She gave two reasons for her assertion.

“First of all, Walmart is perhaps the only international retailer poised to fulfill the promise of “global e-commerce” from an omni-channel perspective. Most if its U.S.-based competitors are still trying to figure out how to integrate bricks and clicks – Walmart is doing so on a global level and accelerating its efforts through strategic acquisitions such as Yihaodian in China. Secondly, Walmart’s international business is a terrific learning lab for its multi-format and localization efforts, both of which are critical to its omni-channel strategy, as these stores serve as distribution hubs for the thousands of unique items that Walmart offers online,” Spieckerman explained.

However, Spieckerman said McMillon’s challenges are significant.

“The term ‘merchant’ still gets thrown around in retail these days but the implications and expectations have to expand,” she said. “That is perhaps Mr. McMillon’s biggest challenge and opportunity as retailers evolve from their store-centric past and into harnessing digital-first strategies.”

Leon Nicolas, retail insight exec with Kantar Retail, wonders what the implications will be for the U.S. business, with McMillon's move to the top.

"For instance, will Bill Simon remain at the helm of Walmart US? If not, does Duncan Mac Naughton assume the helm of US operations? There could be a domino effect there," Nicholas said.

He said word in the industry for sometime has been that Simon could have political aspirations in his future, given his previous public service work in Florida.

Courtney Reagan, a retail analyst with CNBC, also said lots of eyes are now on Simon’s  fate wondering if he will also make an exit.

Brian Sozzi, CEO of Belus Capital Advisors, believes Simon will stay on as CEO of Wal-Mart U.S. because he is connected to the brand, but said at some point he could get pushed out. Sozzi, through Twitter, also said of McMillon: “New Wal-Mart CEO has been groomed for this spot, has touched all parts of organization”

Sozzi also said the decision to go with McMillon suggests the company has concerns about the future of its U.S business and that international growth in the near term may slow.

Others said the naming of McMillon has been in the works for some time as he as been prepped for the role and is the perfect candidate to lead Wal-Mart through these challenging and evolutionary times for retailers.

"We're encouraged by this," said Joe Feldman, a senior retail analyst at Telsey Advisory Group. "I would bet that very little would be different and think that's part of why the stock's barely moving at this point. It's going to be a seamless transition."

Wal-Mart shares (NYSE: WMT) rose slightly on the news trading at $80.42 up 61 cents in normal volume in the morning session. The shares have traded between $67.37 and $80.57 during the past 52-week period.

David Schick, retail analyst with Stifel Nicolaus, said the new is merely confirmation of what many thought would happen.

“Perhaps it will be an extra happy holiday for the McMillon family at home,” he said.

Schick said the decision doesn’t necessarily indicate more focus on U.S. and less on international, but it does underscore what has already been happening at the company as the retailer works on increasing its small store development in the U.S. and matching that intensity with the omni-channel strategy.

“I don't know that it's a deemphasis of international but there's new talking points and directions for the domestic business as part of their emerging story,” Schick said.

Budd Bugatch, senior analyst with Raymond James & Associates, agreed that McMillon was the heir apparent. He said the decision is “vintage Wal-Mart and an example of the retailer in a very rational way going about their business.”

One issue that won’t change even with a CEO transition is the ongoing investigation into alleged violations by Wal-Mart officials of the Foreign Corrupt Practices Act, according to Jeffrey Sonnenfeld, an expert in corporate succession and Dean of Executive Programs at Yale University. 

On CNBC Monday he reminded the public that Duke and former CEO Lee Scott have been implicated as having knowledge of alleged FCPA violations. They could face some legal action when the investigation is finished. He said the board seats of Duke and Scott could be in jeopardy pending the findings of the FCPA investigation.

Sonnenfeld said McMillon is a clean image and calm influence for the company going forward and he is already a board member, a position that Simon does not have.