Walmart Recession-Proofs Retail Reign With 3 Rare Moves Recent earnings reports show retailers sales growth, customer loyalty, and cash flow struggles. While pundits point to 1980s-level inflation numbers, theres a silent culprit failure to fund, build and implement an effective tech strategy. Thats not Walmart. Over the past decade, the retail goliath hired credible tech leaders, prioritized digital transformation, modernized operations infrastructure, and cultivated cross-sector partnerships to drive competitive advantage. As sales surge past $600 billion annually, Walmart has scaled its infrastructure to reach new customers and deliver eye-popping results. Namely, sporting 8.2% sales growth in FY 2023 Q3, the retailer, now the largest U.S grocer, carries over 370 million SKUs across its omni-channel retail platform and boosts margins from its burgeoning Walmart+ services, subscriptions, and advertising. Conventional wisdom may ascribe such success to cost leadership. However, Walmarts competitive edge stems from three bold actions that many companies forgo. Three Keys Exceptional leadership requires counterintuition, courage, and clarity. Three examples of that rare combination differentiate and distinguish Walmart. 1. Recognize that digital transformations biggest risk is humans. Walmarts tech accomplishments are rooted in key senior leadership hires who substantively delineate meaningful digital strategy from IT modernization. First, in 2014, when Walmart promoted Doug McMillon to CEO, he pointed to people as the companys keystone, Walmart culture is not about the poster on the wall, and its not just a feel- good exercise. It generates all kinds of good results financial results that are positive, but also as it relates to people. When people have a good experience, they generate good results. That mindset drove tech talent recruiting. Already at 20,000 IT workers in 2022, the company plans to add 5,000 more to its new Toronto and Atlanta hubs. To bolster the C-suites tech-savvy, Walmart hired its new CFO, John Rainey, from PayPal last year. Second, Walmart re-shaped its corporate governance by ranking technology experience second only to retailing in board qualification criteria. In its 2022 proxy statement, Walmart emphasizes, To support our omni-channel strategy to combine our unique physical and digital assets and capabilities, we seek directors with experience in related industries who can provide advice and guidance on the development and uses of technology as well as digital businesses. Accordingly, seven of Walmarts twelve board members have significant technology leadership experience, including former and current tech CEOs. There is no question that technology is high on the board's agenda, especially with its directors serving on still-too-rare technology and e-commerce committees. Third, and perhaps most critical, in 2019, Walmart appointed Google, Microsoft, and Amazon veteran, Suresh Kumar to the dual role of global CTO and chief development officer. Importantly, Kumar reports directly to the CEO. Tech leaders who work under finance and operations executives often find their strategic influence stunted, as cost management and productivity aims inevitably take priority. It takes courage to boldly build a leadership team that matches digital era needs rather than comfortably rewards professional legacy. 2. Never use operational readiness to screen strategic ideas. In 2022, Walmarts shares held their value, while rivals Home Depot and Target experienced valuation drops of 24% and 34%, respectively. Such stability can be attributed to Walmarts digital strategy long focused on emerging consumer behavior. McMillion highlighted on Walmarts FY 2023 Q2 earnings call, I think there's a lot to look at in [our] metrics. They indicate that not only are [operations] managed well, but we are building a different business model. We are engineered for flexibility. Speaking with Yahoo! Finance about Walmarts innovation, Kumar agreed, We [will] serve our customers the way they want, where they want, and how they want. It's not just only about reducing friction, but creating a delightful customer experience. Whether it is enabling the customer to be able to buy [from] their social feed when they get inspired or having products delivered all the way into the refrigerator. We are building the technology that enables all of this to happen. That ongoing tech investment readied Walmart for the economic downturn, widened its customer base, and bolstered its strategic readiness as consumer markets evolve. 3. Identify the strategic consequences of inaction (before its too late). Too often strategic planning efforts and resulting vision statements promote lofty aspirations but neglect difficult conversations about the hefty price of failure. At its scale, even small dips in Walmarts market share and margins would cost billions. McMillion highlighted on Walmarts FY 2023 Q2 earnings call, Beyond membership [growth], the team is also working on getting items to customers faster while lowering the cost of delivery. Speed matters whether it's how quickly we get items to customers or scale new businesses. I'm excited about the growth I've seen so far and the expectations looking ahead. That ambitious vision was quickly tested. Inflation and recession fears strained consumer spending in recent months and sent shoppers searching for affordable necessities like groceries. The digital strategy and tech investments met the challenge. Walmarts FY 2023 Q3 earnings release boasted 16% year-over-year online sales growth. Global advertising revenue grew more than 30% in the same period. Remarkably, groceries now account for 56% of Walmarts revenue. Impressively, Walmart+ has helped the retailer penetrate the highly-sought upper-income demographic. Rainey told CNBC that nearly 75% of its market share gains in grocery in 2022 came from households with annual incomes over $100,000. Kumar summarized, All of these things are enabled by the scale, the data that we have, and our ability to reason over that using machine learning. Using advanced models allows us to reduce cost and focus on our purpose of saving people money and stress. Clearly, Walmart does not allow entrenched business process constraints to defer, diminish or derail strategic tech investment and innovation. Thats quite uncommon. Bullseye In 2014, Walmart and Target both hired new CEOs, Doug McMillon and Brian Cornell, respectively. The results could not be more different. From the start of 2015, Walmarts valuation has tripled, while Target shares are up merely 38%. A meaningful, well-funded digital strategy paired with operational excellence fueled that gap.

Case Questions

1. Explain how did Walmart's readiness for change and operational flexibility enable it to navigate economic challenges and capitalize on emerging consumer behavior?

2. Discuss how does Walmart's approach to evaluating strategic consequences of inaction contribute to its sustained growth and competitive advantage, especially during times of uncertainty?