New Walmart CEO Choice Means Much Larger International Focus

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Perhaps the only thing that could have made the timing weirder than Monday’s announcement that Wal-Mart Stores Inc. (NYSE: WMT) will get a new CEO in February is if the company had waited until Black Friday to make the announcement. This morning’s announcement said that Doug McMillon, head of Walmart’s international operations, will replace Mike Duke who has been president and CEO since 2009. Duke will be 64 years old soon and McMillon is 47.

Duke presided over some boom times at Walmart following the financial crisis when U.S. consumers flocked to low-priced stores and discounters to help stretch their dollars. Once the economy began to recover, Walmart’s same-store sales growth in the U.S. faltered and have yet to recover. In the third quarter Walmart’s U.S. stores posted a drop of 0.1% in same-store sales excluding fuel and a drop of 0.2% including fuel.

Walmart clearly sees future growth coming from international expansion particularly in China. Duke travelled to China recently and announced that the company was adding 110 superstores over the next three years and upgrading the quality of the merchandise Walmart sells to a level that Chinese shoppers want to buy.

The weak performance of the U.S. stores over the past few years is very likely the main reason the head of Walmart’s U.S. stores, Bill Simon, did not get Duke’s job. Simon, who has been with Walmart since 2006, also has no international experience at the mega-retailer and that is clearly where Walmart is expecting to see growth.

In addition to the drop in U.S. sales, Walmart has been caught in a bribery investigations in Mexico that resulted in the company’s former vice-chairman Eduardo Castro Wright’s retirement in 2012 at the age of 57. Duke and Walmart succeeded in pushing the story out of the headlines, but the investigation is still going and may pop up again at any time.

One failure that McMillon has to overcome is Walmart’s effort to get the foreign direct investment law in India changed. No foreign company can own more than 51% of a joint venture in India, but Walmart recently bought out its 50-50 partner in a distribution company and needs to get a government okay to run the company on its own. So far, the government has been reluctant to give in to Walmart’s arguments.

Finally, Walmart has for the last two years been the object of strikes and related job actions on Black Friday, the busiest shopping day of the year. The company has a reputation for being hard-nosed in its dealings with labor unions and there’s no reason to expect a change in that attitude with a new CEO is coming on board. The Walton family effectively runs the company and as long as that is the case, unions won’t be welcome and any CEO will simply have to toe that line.

Walmart’s shares are up about 0.8% at $80.47 after posting a new 52-week high of $80.51 earlier. The 52-week low is $67.37.

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