Wal-Mart goes for youthNovember 26, 2013: 5:00 AM ET
New CEO Doug McMillon has some tough expectations to meet, but being young (he's 47) may help the retailer show the world it has a vibrant future.
By Geoff Colvin, senior editor-at-large
FORTUNE -- Running the world's largest retailer will obviously be a mammoth task for Doug McMillon, named Monday to succeed Wal-Mart (WMT) CEO Mike Duke -- but in fact it may be even harder than it looks.
The good news for the company is that there may be no one better to tackle the job. "Doug is a perfect fit," says the Yale School of Management's Jeffrey Sonnenfeld. "He was put on earth for this position."
A lifetime employee -- he joined the company as a part-timer in high school -- McMillon runs Wal-Mart's international business, with $135 billion of revenue last year, and previously ran Sam's Club, with $56 billion of revenue last year. Those businesses would be No. 9 and No. 53 on the Fortune 500 if they were free-standing companies. In addition, he's untouched by the scandal surrounding Wal-Mart's alleged bribery of Mexican officials; that occurred under his predecessor as international chief, current CEO Mike Duke.
One more advantage is that McMillon is only 47, and his potentially long run at the top may be just what the company needs. To see why, look at Wal-Mart's stock price, which hasn't been keeping up with the broader market; it surpassed its 1999 high only last year. You might logically suppose that McMillon will need to make the giant company (2012 revenue: $469 billion) perform better. But, strangely, that's not exactly it.
Wal-Mart has actually been performing extremely well. Its economic profit, the measure that investors care about most, has been rocketing for years, calculates the EVA Dimensions consulting firm. Better yet, economic profit has been increasing even faster than revenue, which is a tough act to pull off year after year. Based on past results, Wal-Mart is an extraordinary financial star.
Wal-Mart's problem isn't performance. It's expectations. Crunch the numbers, and it's clear that investors don't expect the company to keep improving economic profit as it has been doing. In fact, the recent stock price implies that investors don't expect Wal-Mart to increase profits at all. It's obvious why investors are skeptical; indicators of future performance have turned down in the past year. Same-store sales have declined for three consecutive quarters -- never a good sign when the economy is growing, even slowly -- and last week the company lowered profit expectations for the second time this year. Say "Wal-Mart" on Wall Street, and the mood turns gloomy.
The company desperately needs someone who can paint a picture of a bright long-term future, and McMillon is well positioned to do that. The international business, his current domain, is where much of Wal-Mart's growth must come from. He has also worked in all other parts of the company and knows its operations from the loading dock up. He's a devoted cheerleader for the company. He once told me, "I went to graduate school [MBA, University of Tulsa] and paid good money for an education that's worth something, but I learned more in six months at Wal-Mart than I learned in five-and-a-half years of education post-high school."
And he's got all that runway.
McMillon takes over on February 1. He certainly can't let the company's performance deteriorate. But most of all, he has to give investors new reasons to expect that Wal-Mart will perform as well tomorrow as it has performed for the past several years.