Good morning,

This week’s Stratechery Interview is with Walmart CEO Doug McMillon. McMillon started working in a Walmart warehouse in high school, and is today the CEO of the largest retailer in the world, and — pertinently to Stratechery — one of the largest and fastest-growing e-commerce businesses: last year Walmart passed $100 billion in global e-commerce sales.

In this interview we discuss McMillon’s career at Walmart, and Walmart’s winding road to competing in e-commerce. The company is increasingly where it always wanted to be — an omnichannel retailer leveraging its stores to differentiate its e-commerce offering — and I was particularly interested in how the company had to learn to develop new skills before it could put all of the puzzle pieces together. We explore that in this interview, along with things like groceries, COVID, and advertising, and why Walmart can win by putting the customer first.

As a reminder, all Stratechery content, including interviews, is available as a podcast; click the link at the top of this email to add Stratechery to your podcast player.

On to the Interview:

An Interview with Walmart CEO Doug McMillon About Omnichannel Retail

This interview is lightly edited for clarity.

Walmart History

Doug McMillon, welcome to Stratechery.

Doug McMillon: Thanks for having me.

I always like to begin these interviews by learning more about my subject, and I’m particularly interested in learning about your path to CEO. There’s not a ton of current profiles out there, but there were a lot when you started, and it was good because it was actually super interesting. How did you get started at Walmart?

DM: My dad was a dentist and he moved us across the state of Arkansas to open a dental practice, and then told me to get to work to pay for college and the highest paying job in Bentonville, Arkansas in 1984 was Walmart Warehouse at $6.50 an hour compared to McDonald’s at $3.35, so I chose Walmart.

So you were in the warehouses right from the beginning? It wasn’t in a store?

DM: My first job was unloading trailers at a warehouse. I did that for a summer, and then the next summer I worked at our return center and I ended up going to school and graduate school. When I got through, I got into a merchant training program at Walmart and they put me in a Walmart store so I worked in Store #894 in Tulsa, Oklahoma as an assistant manager, and then I came into our home office in January of 1991 as the fishing tackle buyer.

So what was the most interesting product that you served as a buyer for — did you start at the peak with fishing tackle, and it was all downhill from there?

DM: (laughing) Over the years I got to do just about every category, and I loved the tech categories, doing those along with toys were a lot of fun.

So over the time, the two highlights as far as your path to the CEO job was Sam’s Club and then Walmart International. What did you learn at Sam’s Club when you were there and how was it different or similar to your experience at Walmart?

DM: Previous to the Sam’s Club CEO role, most of my career, maybe all of my Walmart career, except for the very beginning, was in merchandising, buying and selling merchandise, which I loved very much. So the job at Sam’s really stretched me to be responsible for everything from club operations to real estate, finance and all the other functions, which was a lot of fun. And I finally started to use my MBA a bit to polish off some of those skills.

Actually useful!

DM: Yeah, and then in Walmart International, that was on steroids because we were all over the world and operating these different independent businesses, and got a lot more involved in strategy, M&A, and talent development specifically.

Your initial roles unloading boxes in the warehouse, working in a store, being a buyer, are all sorts of things you associate with retail. You mentioned something with Sam’s Club, things like finance and real estate. To what extent is a retail business a real estate business or a financing business? You obviously have to have working inventory and you have to know how the cash flow works, are those just pieces you need to know or are they actually really core to success?

DM: I think real estate is really core, but you just nailed why I’m still here and loved retail — it’s because of the breadth of it. I didn’t appreciate how interesting retail was until I got started. You have to have a customer relationship, but you need leadership skills, servant leadership characteristics. You get to buy and sell merchandise, you meet suppliers from all over the world, from all these categories, you’re involved in services, pharmacy, putting on tires, serving people at a deli, cutting fabric. There are all these things that add up into this business that’s Walmart that keeps it really interesting.

At the root of it all, though, it’s a people business and it’s a merchandising business. Today, it’s increasingly a technology business. The supply chain is critical, of course, and real estate still plays a key role.

So when you talk about, “It’s a people business”, what is the divide between managing a workforce when you have — I’m just going to assume not every employee is as smart and ambitious as a Doug McMillon — versus your customer base and understanding them? Is it generally the same people and that makes it easier or what’s the balance there?

DM: Yeah, it’s generally the same people. Today, Walmart employs about 2.1 million associates. The vast majority of our management team started as an hourly, just like I did. If you walked around here, not just here in Arkansas, but around our company, you would find a lot of people with more than 20 years of service, and you’d find a lot of people who’ve joined the company to climb up the ladder and create opportunities for themselves. I get notes all the time, I got an email today from one of our associates that was asking, “How do I get from my job today, which is an hourly in a store to your job? What advice do you have?”, and I’m happy to respond back.

What’s the advice?

DM: I had three things that I mentioned. The first one is don’t take your current job for granted, the next job doesn’t come if you don’t do the one you’ve got well. The second piece of advice was be a great teammate — you learn how to lead, you learn how to influence by the way you interact with your peers, treat them well, help them, help them do a better job. And then the third one was volunteer for something extra, volunteer for something hard. One of the reasons that I got the opportunities that I got was that I would raise my hand when my boss was out of town and he or she was visiting stores or something, and someone needed to pinch hit and go to a meeting, I would go, and if I knew the answer to the question that came up, I’d share it, if I didn’t, I’d say, “I don’t know, but I’ll find out fast and get back to you.” I then put myself in an environment where I became a low risk promotion because people had already seen me do the job.

What is the balance, as you look back on your path, and as you’re sitting at the top, between the advantages of having people that grew up in Walmart, quite literally, in your case, and a lot of these other associates you’re talking about, versus the challenges of potentially becoming internally focused and missing outside perspectives? How has your views of that, have they shifted over the years as things change, as things have become more online or things along those lines? Or is there still a common thread there?

DM: We’ve always thought that a blend was best, and there are probably times where that blend is 80/20 instead of 70/30, depending on the moment that we’re in. But Sam Walton would bring in great people from the outside to help build the retail business. He recruited David Glass, he recruited other people that really were additive and in our case, today, we will reach out for a great technologist, for example, expertise that we don’t have. Most of our retail operations jobs are done by those of us that have been around for a long time, but we’ve added talent like Suresh Kumar who joined us after a career at Amazon, Google, and Microsoft, and he and his team bring a lot of external experience and perspective to what the long-standing Walmart associates bring.

When you started in 1984, this was more like v1 Walmart, I think, really specializing in small towns and they had an outside-in strategy when you look back. You went through the Supercenter revolution, what was that like now looking back as it became this behemoth, an everything-to-everyone store before The Everything Store existed? We’ll get to that in a little bit. But as you look back now, decades on, what changed at that time and what lessons, if any, did you take away from that?

DM: I really love retail history. We started our first Supercenter in 1988, prior to that we were operating general merchandise discount stores, and we tried some big hypermarkets copied from Europe and they had failed miserably, but we tried to downsize it and make it a Supercenter and it started working.

There’s a really interesting period of time from 1988 into the mid, well let’s say all the way through the end of the 1990s, where David Glass is our CEO, and we started expanding outside the United States, we had the Supercenter opportunity in the United States getting into food, which was supposed to hurt our business because it was lower margin, and then Sam’s Clubs, which we were growing, and there’s an article in Fortune Magazine about, “Walmart’s lost its way now that Sam’s passed away (Sam passed away in April of 1992) and this leadership team is going to mess it up. They’re going to get in the low margin food business, they don’t know what they’re doing outside the US, etc”. It turned out that all three of those things, the Supercenter, the Sam’s Club business and the international business, all three ended up to be really successful. But they took a lot of risk, and it taught us the importance of experimentation and also the importance of improvement every day, just constant incremental improvements.

Over the time of your tenure as CEO, there’s been the rise of dollar stores or the Dollar General or whatever they’re called, which if you squint, is v1 Walmart. What did it feel like as you’re looking there, King of the Supercenter, and it almost feels like you’re being beat at your own game a bit? Was there a bit of a flashback or were you unsurprised? What was the perspective there?

DM: I think we’ve seen it all. The e-commerce store is the interesting one.

We’re going to get to it. Don’t worry. I’m just curious about how this all — well, tell me how it relates.

DM: As it relates to brick-and-mortar, we’ve seen it all and done it all. We operate around the world in different formats, different brands. We’ve got large stores, small stores, all these different formats. So we know that space pretty well, but the e-commerce business was different.

So one more quick question before we spend the rest of the time on e-commerce. When it comes to international, what advantages did Walmart have or even do they have going forward? Because one of the things about retail, we mentioned the real estate angle, that entails physical goods, you’re moving physical goods around. Do supply chains transfer across borders? Is it processes? What is the synergy that you have that lets you expand around the world in a way that you argued was very effective?

DM: Yeah, big picture, it’s about people and culture. It’s about an everyday low price business model, it’s about a supply chain expertise, and then it’s like a thousand little things underneath all of that. Retail is detail, and that plays out throughout the international business as well. Today’s portfolio has got omnichannel businesses in Mexico, Central America, Canada, China, but we also have an e-commerce marketplace in India with Flipkart and our financial services business in India, PhonePe — those are a bit different, but the other markets have a lot of commonality strategically.

I would actually love to dive more into retail history, I think it’s super interesting as well. There’s a bit about Walmart that reminds me actually of Microsoft in some ways, where people forget that Microsoft was super disruptive. They were a low cost alternative, because people only remember them as being dominant, and I think there’s a story of Walmart that’s the same way. There’s a further analogy where at some point Microsoft wasn’t so dominant anymore, and you look back and it’s like when you think of e-commerce, obviously you think of Amazon.

Walmart’s E-commerce Journey

You take over the CEO job in 2014, this was 15 years after Walmart leadership. I believe they said in 1999 that Walmart.com was going to be a top priority, but it did not feel like a top priority throughout those periods. What had been going on? You were at Sam’s Club, you were at Walmart International, you were in Bentonville. What was the view and understanding of e-commerce prior to you taking over the top job?

DM: I wrote a memo to my boss’s boss’s boss in the early 90s, raising my hand, asking for a job, working on the startup team, designing something related to retail on the “information superhighway” was the phrase that was used at the time.

You know if you used “information superhighway” in one of your business memos you’ve been around a while.

DM: (laughing) Yeah. So I was excited about what that could mean and the answer that I got back was, “Go back to work young man. You’ve got a lot to learn about retail.” So I did and it turned out great. But if you fast-forward through the years, there was a period of time when there was too much debate inside the company about the significance of e-commerce, there were leaders who believed it would never be any bigger than the catalog business, there were leaders that believed it would never be profitable. I happened to be responsible for entertainment, electronics, toys, stationary, books, sporting goods in 2000.

Which means you understood e-commerce much more quickly than a lot of the rest of the company.

DM: That was in 2000, 2001, 2002. Everyone was telling us eToys was going to take all of our toy business. The bubble burst, that gives people that want to relax about e-commerce, a chance to relax about e-commerce and have an, “I told you so moment”, but there were more than just me here. There were several people that realized the customer is telling us something and the idea of a broad assortment delivered to your home is appealing.

Everybody loves convenience, everyone wants to save time. But we had built a business called the Supercenter business that was one stop shopping that helped people save time and you had instant gratification because you could walk in the Supercenter and you could get 120,000 SKUs, and they were the best items from around the world. Two-thirds of what we sell in the US has made or grown in the US but that other third comes from over 130 countries, so what more could people possibly want?

Well, the answer is they wanted more. Always thinking about the customer value proposition is including price, assortment, experience, and trust, and all of those have been changed by technology and been changed by e-commerce, and so leading up to the moment when I took this role, there was an understanding that we needed to invest in e-commerce, grow e-commerce, but we didn’t take it seriously enough. We didn’t do everything we should have done to maximize that opportunity, partially because of the beliefs that were held. It’s a bit of classic Clayton Christensen’s Innovator’s Dilemma, also because during that period of time, the Supercenters we were opening were doing great.

What strikes me is you mentioned two things in that answer. You talked about, “The consumer likes convenience”, and then you mentioned, “We had Supercenters”, which were certainly very convenient. But I remember I think in 2011, the then CEO of Walmart.com said on an earnings call that Walmart e-commerce would offer, “fast, faster and fastest” shipping, fast shipping to your store, faster shipping to your house, and fastest shipping for same-day pickup. I actually wrote an Article about this a couple of years later around the time you acquired Jet.com called Walmart and the Multichannel Trap. My argument was that Walmart was so wrapped up in figuring out how to leverage its stores, that they had completely forgotten about the customer experience. It’s like, “We have this asset, we have Supercenters, how can we actually leverage it?”, and then the fact that this was the most confusing pitch of a service ever, no one seemed to notice that fact. Was that a fair critique as you took over the job in 2014?

DM: Yeah, I think there were lots of different things that happened, different beliefs, different things that were said, but it’s always been clear to me that this was an “and” — there are going to be stores, there will be store curbside pickup, there will be delivery of various forms, there’ll be stores and e-commerce. So there’ve been times when people have said about us, “Well, they didn’t really figure out how to leverage their stores till recently”, but we’ve been working on leveraging the stores.

That was your whole thing was, “We’re going to leverage the stores” for ages, and I’m really curious to unpack this, this is actually the core thing that I really want to understand and get from you. I know in broad strokes your journey, but the part that stands out to me is it feels like this back-and-forth of the stores ought to be an asset. They differentiate you from Amazon, but how do you actually leverage it? It felt like with 2016 when you acquired Jet.com, it’s like, “Okay, we’re just going to build an e-commerce operation”, and you had this separation of teams along those lines. Was that, in retrospect, a mistake and you had to reunify it, or did you have to develop those muscles over time? Walk me through that Jet.com acquisition and what pivot was embedded in that and how did that play forward to today?

DM: If you think that a store e-commerce business is the answer, you end up thinking that a population of less than a million items is enough, and you end up thinking that you don’t need an e-commerce marketplace, and you end up thinking other things.

Our view, my view, was that you need all of the above. The stores are an asset, and they have a great assortment in them and they’re close to people. Being within 10 miles of 90% of America is a huge advantage, especially with fresh food at a good price. But we must also, if you think long-term and you think about what the company wants to accomplish, you must have a big and important first-party e-commerce business, and you must have a marketplace, and the things that go along with the marketplace.

There were people within the company that had a hard time getting their mind around that and so we bought Jet.com, and I’m really glad that we did and would do it all over again. Mark Lore did every single thing that he said he would do after we made that acquisition for the five-year time horizon that we agreed to, and he brought a strong belief in e-commerce, some e-commerce knowledge that we lacked, a team, some distribution centers, and a brand that we thought we would use in a certain way, but in the end, Walmart ended up having such a lower CAC [customer acquisition cost], we transferred all the resources to Walmart because that brand can stretch everywhere.

But it caused us to make a really big commitment and remove any doubt as to whether we had strong intentions related to e-commerce and we ran them separately for a few years, which created a lot of tension. The stores viewed themselves as being profitable and big and important.

“Why are we paying for this arm over there?”

DM: “Why are we doing this and why are we going to lose all of this money?” So you can imagine the journey that flows from, “We’re going to run great stores and make big investments in those stores, lower prices, invest in wages, and we’re going to build an e-commerce business and go through the period of time that we need to go through with losses to achieve something on the other side, and we’re going to modernize our tech stack at the same time”.

Hopefully one of the things that you’ve seen as you’ve looked at Walmart, is that our board and the management team and the Walton family supported those investments and those four big areas, and they were all really big, such that it created some growth, but it also reduced earnings for a period of time so that we could get the company set for the future and be here for the next generation of retail, which having worked here for so long, that first job was 40 years ago now. I’ve drank all the Kool-Aid and am completely convinced that Walmart should be here for the next generation of retail, because we’re so wired to fulfill our purpose of helping people save money and live better.

These are good, hardworking people with good intentions, and you can have a great culture and be great at tech at the same time, and that’s what we’ve set out to do our on the road towards delivering. But it did take this period of time where we had independence before we eventually could put them together and really start to leverage omnichannel, and there’s a story to be told if you want to hear it about the UK and our Asda business, where they had e-commerce, food delivery business, and we took their software and moved it over to Walmart US and started the curbside pickup business a little over 10 years ago now.

Well, I will ask that in a second, but in 2020, you unified the supply chain aspects. You used to have two completely different companies, unified the buying, so the future Doug McMillon’s of the world who are doing merchandising for two different entities are now unified. Was that an issue though? I can imagine that was a very difficult integration, but is what I’m hearing from you is that you had to build up e-commerce on its own in order to achieve that integration. Could it stand on its own, be a partner? Is that the takeaway from that five-year period? Even though it was super painful and super expensive, it was necessary to come full circle back to omnichannel.

DM: I think so, and I think two things changed. One is that by the time we got to 2020, we had leaders that had a stronger digital acumen, e-commerce set of capabilities and beliefs.

You had another generation coming up that was very aware of e-commerce.

DM: John Furner believed in omnichannel all along, and so that was great, and then I think the other thing is e-commerce had become so big and the plan was moving along such that you can’t undo it now, you can make it better, you can plus it up, you can find some synergies and remove some of the older problems we had of the separation, but it created some newer problems and some complexity on how you actually integrate a supply chain, for example.

The Grocery Advantage

When was this Asda technology transfer? When did that happen?

DM: I’ve lost track of time, but it was probably 2013, 2014. My first board meeting as CEO, we took the board to the UK and we showed it to them. Our thought at the time was, “We’ve got this advantage of food close to people at a good price”, and if you go back to the old Forrester e-commerce penetration chart, and you see books and electronics and categories like that at the top in terms of category penetration and food at the bottom, people were wondering, “How do you even do food e-commerce? Are we going to be dropping strawberries on somebody’s doorstep? It doesn’t feel like we’re going to be doing that”.

But what we believed is that in the US pickup might work. So we started in California and then Denver, and a team started working to put everything in place to do grocery pickup and in the beginning we even had a separate app. It was an orange online grocery app.

You had the orange app and the blue app. This is the key thing that’s super intriguing about Walmart is you see Amazon’s been failing, trying, experimenting for years to figure out grocery. I think from their perspective, they perceive, if you look at the retail market as a whole, grocery is an astronomical part of that. It’s a repeat purchase for obvious reasons and it ties into lots of other things. We see the Walmart Supercenter and how successful it was for you to start selling grocery items. How critical has that been? When you look back even to Supercenter and then combining those two apps to have the grocery app and the e-commerce app and to put them into one, was that always the North Star? You knew that would be a big advantage, has it been a bigger advantage than you expected?

DM: Yes. It was always the plan to bring things together, but just like the structure, it needed to be separate for a while for good reasons. We couldn’t pick at store level the full Supercenter for a while. It’s a lot harder to receive an e-commerce order and pick a toy at Christmas on time than it is to pick the strawberries every day, because you know where they are. So we had to learn a lot of different things, including the complexity of how to even design an app and land it all on the size of a phone to be able to help you navigate a basket purchase. We love basket businesses, the Supercenter is a basket business, Sam’s Club is a big basket business. We want to build an e-commerce business that’s a basket business, not just a spear fishing exercise.

So yes, that journey led us to putting it all together and then you start to see us put the supply chain together. So the work that Suresh [Kumar], John [Furner], and Kath [McLay], and Chris [Nicholas] and others are working on now is to put the data layer, an operating system layer, which is number of applications, and the physical supply chain together in a way where you can achieve a greater level of inventory optimization.

One way to think about Walmart is a very large river of merchandise, moving from raw material to a customer and anytime that river of merchandise has imperfections, we either have an out of stock or we have some sort of overstock that creates additional costs, labor markdowns, accidents, damages. So the holy grail in retail is perfect demand estimation and a supply chain that can match it. So inventory optimization is a huge priority for us and because we’re omnichannel, we have all these nodes, if you just think of the United States, we’ve got various forms of distribution centers that are being automated now and we’ve got stores and clubs close to people and if you can improve through technology like generative AI, what forecasting looks like, and you can improve how supply chain operates inside of a distribution center because you’re using automated storage and retrieval systems, carts with wheels putting cases away, your inventory accuracy goes up, your productivity goes up. There’s another level of what retail can look like and that’s what we’ve been working towards these last few years.

Is there an aspect where actually the real story of Walmart and e-commerce and starting, “We have this multichannel opportunity — oh, actually no, we have to build up an e-commerce arm, now we’re ready to do it all together”. I do want to ask you about COVID in a moment, but there was just a learning process for Walmart that this tech stuff is actually a lot more difficult than we realize, it takes a lot longer to build than we realize and on the flip side, once we actually get it built out, it’s a lot more powerful and extendable than we realize. Is that a good summary of the learning process of the best retailers in the world trying to become a tech company?

DM: I think it is, and if I were to restate it in my own experience here, I would say this story is actually about people changing, and if you looked at what had to happen inside the company to enable what you just said, we had to learn about design, product management, working in an agile fashion, working across our silos in a different way.

We grew this business with the store operators and the merchants making all the decisions, I got to be one of the merchants and it was a lot of fun. But to put the customer in charge, you have to start with design. “I’m a merchant, I’m a buyer, tell me what design really means in this instance and a product manager does what? How’s that different than a project manager?” So a lot of learning by all of us here, reading, talking to different people, learning the difference between a great product manager and an average product manager, for example. There’s just something about, like the 10x with engineers, there’s a way of working change that had to happen here to bring it together. That’s actually the most exciting part of the story in my view.

One of the anecdotes about Sam Walton was his belief that store managers need to be able to innovate, they need to be able to experiment, and you mentioned this in the case of merchandisers, a lot of independence. I can imagine as you look back at your career, you just referred to, “It was a great asset”, and being able to show that off growing up. However, tech is inherently centralizing, you’re doing this massive amount of investment in this technology that you can get high leverage by extending it broadly. How much of a challenge has that been? To get this omnichannel you have to understand inventory in each store, but that means more restrictions on the store manager. Has that been a real difficult thing to figure out?

DM: Taking ownership all the way down to department manager level for toys and store number #1113 has great value in it, and when a buyer feels like they’re really responsible for their category, there’s great value in that, but we have to, on behalf of the customer and in a customer-led way, have top down decision-making to say, “No, we’re not going to just respond to what you, the buyer, want the next tech priority to be”.

We’ve actually set the tech priorities driven off what we want to build for customers and what they’re asking us to solve, and that’s how it’s going to be, and that is a cultural tension even today because we actually want some of both, we want ownership. We don’t want to diminish that ownership and our store managers, they make this company go, and they make a lot of great decisions, and they’re fantastic. You may have read recently, we increased their pay and we need a tech team and a design team, a product management team and leaders that can identify priorities and make sure they get resourced.

But take a marketplace, we can’t build a marketplace one country at a time, you build one marketplace. So there have to be people that are willing to give up authority so that that gets done in a way that’s most efficient and we’re doing that now, but I think that tension is going to be here forever.

This is, I think, implied in what you just said, but it’s very easy, I’m sitting here, I’m a tech analyst, I’m intrigued about your e-commerce story and I think about these centralizing functions of tech in those lines, and there’s a lot that you needed to learn about technology. What is it, as you’ve understood technology better, that technology needs to understand about what Walmart does well? What is it that the industry tends to miss that you think that, “Look, this is actually an advantage for us because we know how to do this and all these big companies do not”?

DM: I won’t quote the person because I haven’t asked their permission, but one of the technology leaders, a few years ago, was visiting with me here and we were writing on the whiteboard and they stopped and turned around and looked at me and said, “Oh my God, you’re going to win.” And I said, “Yeah, but why?”.

(laughing) “I agree with you. I have no idea why, but I agree with you.”

DM: “Now, tell me how”. And he said, “Well, you’ve got a really healthy customer service, servant leader type culture at scale, and you have physical assets that are truly unique at scale. The data and software, the tech, you can learn that, and you can learn that faster than what anyone could do to replicate what you already have.” That is how I felt, and it gave me a boost and some hope to hear that coming from a technologist and we’ve been working hard to try to do that.

So what I think sometimes a pure tech company can underestimate is the importance of culture, the importance of a purpose. I had somebody here recently that was trying to get us to get interested in humanoid robots, and my answer was, “I think humanoid robots are scary and I don’t know why you have to put a head on them”. I don’t know why they have to have five fingers, surely there’s a way to do something that’s a little less intimidating, and until robots are buying from us, I’m serving humans.

So I care what people think, and I like people, and I like employing people and I like creating opportunity for people so I’m pro-people and I want the technology to help us serve people. Of course we want machines to do what machines are best at, you must and you want to, and at the same time, we should consider the importance of being purpose-driven. People need a “Why?”. I’m a big fan of Simon Sinek, people need to know why they’re doing what they’re doing, me included, and they want to work at a company with values and a culture that matches those values and I think that those things matter even in a pure tech company.

To that point about, “You can learn the tech”, it’s not clear if other companies can learn customer service. What it does seem to me is you have a very large, well-known competitor, and if you actually distill the core essence of that competitor, it is understanding, from the very founding, what the implications of scale are. What does it mean if actually every book can be cataloged and there’s delivery networks, and you can have more inventory at lower prices than anyone? Then you extend that category to category till poor Doug McMillon in 2000 is like every category that he owns is facing this threat.

Is there a bit where, as you understand scale and you understand scale in a different way, being in Walmart, that scale actually can’t get broken down into individual stores? As you look at these competitive efforts, and they’re closing stores or trying different things, maybe it’s not just a people problem, it’s that the more finely tuned the machine, the more finely honed the machine, the harder it is to break it up into component individual parts and even you, with Walmart, those Supercenters were machines, they were still much smaller machines in the grand scheme of things and it took you arguably twenty years to break that down into being sufficiently composable pieces that you could serve it in different ways. Is there a structural advantage that you feel like you have, thanks to grocery by and large, which doesn’t scale — it goes rotten — that is going to be an unassailable base to build from?

DM: I think scale matters, and being an Aggregator creates lots of opportunity, but scale also has a lot of disadvantages and it’s an imperfect concept. I experienced, along with the rest of the team, what it was like to go from being a Cinderella story with a great entrepreneur in Sam Walton to being large and disliked just because you’re large, and all of the negatives that went with it. So I personally don’t use the word “scale” very much because when I hear that word I think of pain.

Well, you had to undo your scale, I think that’s part of the whole thing, the Supercenters, it is like you went from being the cute little local locomotive to being the bullet train, but the implication of that, you move a lot of stuff very quickly, but your tracks are pretty rigid and it’s like you had to undo that and undo the tracks so you could put stuff on and off more effectively. If you’re an ocean liner, you’re not going to be going down little creeks very easily.

DM: Absolutely. I agree.

COVID, Marketplace, Connect

What was it like during COVID? As you look back, you had set up Walmart.com with Mark Lore in 2016. Around 2020, that’s when you unified these different divisions, “We’re going to be one thing” — was that forced by COVID? I believe it happened that summer. Was it already on pace? What happened then? This is the most dramatic event in e-commerce history in many regards.

DM: Yeah, it was already on schedule, and then COVID happened on top of that and consumed us all. I can’t think about that period without thinking about how associates stepped up and did amazing work to help with COVID testing and eventually with immunizations, to run stores and keep them open safely during that period. And on top of that, we went ahead and executed the strategic change that you’re referring to bring things together.

Was it almost a gift, kind of? Because you had to execute the strategic change and you had to do it in a matter of weeks as opposed to years.

DM: Yeah, I think that’s fair. People were making decisions very quickly, they were less resistant to change. I think it was helpful in that way, and our business, in terms of pickup and delivery, was growing very quickly because so many people wanted to shop that way. Thankfully we had the pieces in place, the app experience, the store experience, but we had to hire a lot of people to pick orders at store level, for example. There were waitresses and bartenders that didn’t have jobs for a period of time and they came our way.

I remember being in a store in South Dakota where the manager had hired 40 people from up and down Restaurant Row because Restaurant Row was closed in that town. So it was pretty dramatic and I think the team did a fantastic job. When you look back on what happened during that period of time, John Furner at Walmart US, Kath McLay at Sam’s Club, and then around the world with Judith McKenna’s leadership at the time, we adapted. They told us we needed plexiglass up at every cash register — we have 4,700 Supercenters!

That’s a lot of cash registers.

DM: Where do you even get that much plexiglass? And the team made that happen in just a few weeks. We needed masks. Finally, the US settles the debate on whether we’re going to wear masks or not, and John Furner tells me on a Zoom, “I’m glad they decided that we need them because I bought more than a hundred million recently and they’re on the way”. So lots of good, fast decision-making happening.

It does strike me looking back that — I can’t imagine how difficult that was given all your physical infrastructure. But as this forcing function to have, to make this transition to omnichannel, everyone was forced in omnichannel, you had investments in place, now you could impose them quickly.

I am very interested in the marketplace business. You’ve mentioned it a couple of times on this call. It’s like the inverse of Walmart, in that Walmart you have this central buyer, you have this huge supply chain, just this capability to fill up all these stores. In this other case, you have this disparate, massive number of suppliers, you’re trying to get all these folks on board so you can have an offering of everything, but then they’re funneling into one place. It’s on Walmart.com, it’s not like the marketplace is within the Walmart stores themselves. Walmart has had a marketplace, actually for years and years and years, but it was stuck at a very low number of SKUs for ages. What was the unlock to make that start to be a meaningful part of the business?

DM: For Walmart US, the traction that started, the credit goes to John Furner, Tom Ward and Manish Joneja who lead that area.

We had to do some things differently, we’re a merchant-driven organization, we’re a first-party inventory company, we like to buy and sell merchandise and during those periods of slow growth, we had situations where the merchants could influence the search results to sell the item they owned a lot of, rather than what the customer wanted. When you don’t have much volume, it’s really hard to attract sellers if you’re competing against it in that way where you’re trying to prioritize the inventory you own because you don’t want to take a mark-down. It wasn’t even the same item, it’s just prioritized, and so the customer search results are not very good either, so we had to create more separation there.

It is interesting, I hadn’t thought about this until we’re having this conversation, but in some ways we put things together, but then we took part of it back apart and had it run independently, and once we had the expertise and we had that separation, things really started moving. Then an additional thing is we were pretty bad in terms of our seller tools, and we had a lot of work to do on the seller experience with the apps that we built supporting the marketplace.

This bit about, “You know what to do, but then now it’s going all wrong, you have to take it apart and rebuild it and then put it back together” — that’s what strikes me as the Walmart e-commerce story, by and large. It does feel like you’ve figured it out.

Tell me more about Walmart Connect, a key part of a marketplace, which is a retailer business, generally, we didn’t talk about this earlier, is advertising. It’s a key part of a marketplace business as well. What is that and why is it so important? You keep talking about it on your earnings calls. Give me the pitch for it right now.

DM: The unique proposition that we have is that we can link a digital ad back to a physical store purchase down the road.

That’s been the holy grail. I remember Google and Facebook were talking about this years ago, they’ve given up on it, but you actually, it turns out it’s important to actually own the store where it happens.

DM: Yeah, we’ve got work to do on attribution, we’re making progress as it relates to that, and we do think about where these ad dollars come from. We have some merchandise suppliers, first-party inventory suppliers that have chosen to participate, and that’s great, and I’m particularly excited about those that have less fungible dollars because we don’t want prices to go up if we’re taking an ad dollar from a first-party supplier and then we have an opportunity with marketplace sellers as it relates to ads. Seth Dallaire and the team are doing a great job of putting all the pieces in place, including technology, so that that business can continue to grow. We think it’ll become big and we’re trying to make sure that we do it in a sustainable manner that doesn’t harm the customer experience. It can improve the customer experience if ads are done in the right way and we also want to make sure that we don’t do anything that causes our prices to go up in our retail business.

Where does this Vizio acquisition fit into that?

DM: We’re pending government approval on that transaction, and hope that that will happen this year, we think that it should happen. We are interested in a TV operating system, and we believe that’ll help us with in-home presence and help us extend Walmart Connect. We’ve known Vizio for a long time. [Vizio CEO] William Wang and I have known each other for more than 20 years, and I’m really excited about the opportunity to figure out the future together once the approval’s in place.

Is the success of Walmart Connect and this Vizio idea, it seems somewhat far afield, but you have these changes in the digital advertising marketplace, things like Apple’s ATT, in the US, I think, being the most important here, where the advantage that comes from linking inventory to conversion is large. Is that something that’s impactful or is this just a matter of “We have this opportunity to go from digital to physical and that’s the more important thing”, and this would happen regardless?

DM: I think this potential acquisition can help us grow our advertising business, but it can also help us get better at inventory management, just as you’ve described. That holy grail of being able to more perfectly estimate demand and match supply to it, is within the field of view of that acquisition too.

Just to go back to the marketplace and it connects to this a bit, you mentioned that you want to make sure you keep prices low for your stores as well. Again, your competitor has leaned more and more into the marketplace, and it’s a very profitable business, you’re charging just to hold stuff and then when it’s sold, your sellers are bearing the inventory costs and a lot of the risks in that regard. You can’t give up too much on first-party because all your store is first-party things. How do you think about the long-term balance between the marketplace and your first-party business and keeping those? Is this the case where you are still somewhat restricted because you do have physical stores and that’s part of your mindset?

DM: No, I think you can love more than one child, and we’ve got to do all these at once. I think there’s a store inventory opportunity for us and buying and selling merchandise is hard, by the way. There’s a lot of people here that have been doing it for a long time and they’re good at it, thankfully, but it’s not easy.

That second piece is first-party e-commerce. There are times when we want to own that inventory because we want a great customer experience, or we can take advantage of the amount of quantity we’ll buy.

Then third, there’s the marketplace, and the marketplace is so important because we got to be in the consideration set. When somebody takes their phone out, and it’s so easy to choose where you’re going to go shop, if you don’t have a really broad assortment, you’re not even in the consideration set, and so that’s one of the reasons why I was so convicted that we needed a marketplace all along, and others were too.

The Walmart Brand and Flipkart

This is one of the big questions. You mentioned that Walmart has just a way better CAC than Jet.com did, customer acquisition cost, it’s a super well-known brand. How have you gone about changing people’s thinking that this ought to be an e-commerce destination? Or is this an aspect where I’m just taking a coastal elitist view and actually for most people, Walmart is obviously the first choice? What is your brand perception amongst your customers? How has that had to shift? Or do we underrate the place that you are in in your customer’s mind?

DM: Yeah, I think that people that shop Walmart frequently and love the brand the most find it very natural to come to us first for e-commerce. But for others that may shop around or not have chosen to shop at Walmart in the past, you get what you earn, and our opportunity to earn their business starts with winning their grocery and consumables basket.

Now, if you’re coming to our app for pickup or delivery of grocery, let’s take back to school as a use case. If you’re buying school supplies from us, and we have a healthy market share there, we want to sell you not just the glue and the pencils and the tech you need, but we want to sell you the backpack, and if we can sell you the backpack, we got a shot at selling you the denim and the T-shirt your kid wants, and the shoes they want. So if you imagine those use cases as threads from back to school to seasonal holiday where you definitely want a turkey for Thanksgiving, but you’re also going to buy some home decor for example.

We just have to pull all those threads together so that when you’re experiencing us on the app, it’s an unnatural act to go anywhere else because we’ve got the item and we’ve got it at the best price.

Where does Flipkart fit into all this? I was really confused at that acquisition when you did it. It felt like just say a “We’re a big company so we can do this”, is there synergies between what they do and the US company and the rest of your international operations?

DM: (laughs) That’s funny that you thought of that.

Tell me why I was wrong!

DM: We’re really excited about both Flipkart and PhonePe, and they’ve been able to deliver what we thought they were going to deliver since we made the acquisition. You may remember we were operating in India at the time, and we had had a joint venture.

We’d tried to do stores of three different sizes. India restricts multi-brand retail for brick-and-mortar stores, but an e-commerce marketplace is allowable by law and we got to know the founders of Flipkart and developed an appreciation for them over time. We could see the progress that they were making and when you think about the countries in the world where you want to operate, the US is first on our list. China’s a great opportunity for us, and we’re continuing to do well there, and India would be third on that list. So when you look at what was happening with e-commerce and how big that was going to become, there’s the big wave of India, there’s the big wave of e-commerce, and then there’s the question of, “Is this the brand to invest in?”. We developed this confidence in that team, and so far we’ve been proven to be right about that.

So when you look at the value of the company over time, I’m talking about Walmart now, you not only pick up the financial investment that you get by picking a winner in India, and it turns out that PhonePe is also doing really well and is very exciting, but you also get the IP and you get another infusion of tech talent that’s working in an incredibly fast and creative way. One of the things that I saw in Flipkart from the beginning when we started looking at them is that they were very good problem solvers at a granular level and very fast at doing it and they’ve continued to have that characteristic, which gives us a chance to expose our leaders from around the world to that way of working and thinking, along with the transformation that we’re trying to go through in the US and our other countries.

Why does Walmart not support Apple Pay, and what does that say about the way you think about partnerships, your connection to the customer, things along those lines?

DM: Yeah, maybe we will at some point. Those conversations are ongoing. I think in our case, we would like to have the customers open our app in the store all the time.

I’ll say, by the way, using your app in the store is amazing. You put in an item and there’s a map that comes up and you walk to it. I was blown away when I experienced it.

DM: Yeah, I used it and I know our stores as well as just about anybody, but I couldn’t find Command Hooks the other day, and I used our app and it took me straight to Command Hooks, I was grateful. You can use it to do all kinds of things and we’ll keep adding use cases for it.

But as it relates to payment specifically, that’s one of the things that we would like people to use our app for. We have this joint venture with Ribbit Capital called One, here in the US, and we have some other things including PhonePe going on in India as it relates to financial services, and we’re still exploring that space and learning so it’s a fluid situation.

What I hear, just stepping back, I know we’re reaching the end of our time here, this in-and-out, in-and-out bit, I like that answer because the idea of, “We want to be the one place people go” — at the end of the day, a big company, particularly ones that was super big and that had to figure something out, they ultimately win because they figure out why being big is an advantage, and it’s just a challenge of bringing that to bear. It does feel like you’ve been able to do this. I wanted to talk to you because I’m intrigued, I’m curious, I kind of feel like the person you were talking to, this is a company that could win.

DM: We think we will. We don’t take that for granted, but I like our chances.

To that end, what does winning look like? No one thinks Amazon’s going to out of business tomorrow. In your perspective, is it that there’s a Big Two, or what does this look like in the long run?

DM: Customers and associates pick us first and love us.

Fair enough, fair enough. I know I was not going to get a number out of you, I guess, but that makes sense. Doug McMillon, It was great to talk. More educational for me than anything. I think the history of retail is fascinating as well, we’ll have to have that conversation another time, but thanks for coming out to Stratechery.

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