Wal-Mart’s McMillon says digital transformation is key, looks for new profit pools

Change is the only constant in the retail world today and Wal-Mart Stores CEO Doug McMillon told Wall Street analysts Tuesday (March 14) the retailer is committed to its digital transformation.

McMillon was one of the speakers at the Bank of America Merrill Lynch Investor Conference in New York City. McMillon said he and Wal-Mart CFO Brett Biggs joked on the flight that they might have to converse among themselves given the blustery winter storm Stella which had blanketed the city in snow this morning.

“It’s really nice that you made it; appreciate that,” McMillon said as he took the stage.

McMillon outlined a few key objectives that has Wal-Mart’s complete focus, which aside from saving people money and time involves the company’s digital transformation. That conversion is not just on the outside customer-facing areas like mobile pay or the skip-the-line feature added to the mobile application. McMillon said it’s equally important to change on the inside.

“We were born with a low cost mindset,” McMillon said. “But, as time goes on and the company gets bigger and older, you inherit bureaucracy, layers and expense and in some cases we don’t need. We’ve been trying to chip away at that, but we’ve got more of a transformation to go through. We’ll keep working on the conventional ways to reduce cost. But we’re really excited about changing how we work inside the company to be digital in size, not just with the things that customers need, but how we actually do work.”

McMillon said the retailer is not only using digital capabilities to enhance customer shopping experiences. It’s also figuring out how the technologies may allow employees to work more efficiently. For instance, he said in the past he might have asked a store manager to run a report for him, but now the data is readily available automatically on a mobile application. He said store managers can now run stores largely through the use of mobile applications, reducing time and overhead costs.

“We must do that in the home office, which will increase our speed,” McMillon said.

In the past year, McMillon said his leadership team has been reading and talking about design thinking and talking with others about what it means to be a digital enterprise. He said they’ve also brought in guest speakers from digitally native companies to talk about it.

McMillon has been around Wal-Mart a long time, and he confessed one of his biggest challenges is not flooding the engine with too many ideas.

“We have to be able to execute,” he added. “But it’s a really exciting time to be in our business.”

Analysts asked McMillon about discount competitors Lidl and Aldi. He said Wal-Mart doesn’t underestimate those companies as competitors, but the retailer will look to win where it can, and that’s primarily on assortment and offering multiple channel options.

When asked if the retailer would consider creating alternative ancillary profit streams the way Amazon does with its advertising and cloud services, McMillon admitted the company could and should do more of that. He said Wal-Mart’s board of directors and leadership team regularly discuss areas they want and need to be more involved. He said that includes different categories, geographies and formats. He said the company must be thoughtful about what areas to expand reach and not get too far from “the core DNA.”

“But there are things that are closer to the core of what we do,” McMillon concluded. “Financial services would be one, health and wellness is an area where we think we have an opportunity that we probably need to be more aggressive. So, it could be in the future that you see us be more deliberate about creating additional profit pools. That’s certainly on the agenda and we’re thinking about lots of things, and many of which you could probably guess. But we will be really thoughtful and deliberate about those kinds of choices including managing our existing portfolio.”

Wal-Mart Stores shares (NYSE: WMT) closed Tuesday at $70.72, up 1.10% on the day. Over the past 52-week period shares traded from a high $75.19 to a low $62.72.