McMillon bets career on EDLP

Walmart’s strategy of every day low prices underpinned by an every day low cost operating model will work everywhere in the world, according to international division president and CEO Doug McMillon.

Responding to a question about improving international financial returns, McMillon weighed in on the need to deliver on the strategy of every day low prices on a broad assortment and how that is the right approach internationally in large format stores.

“I will bet my career on it anywhere,” McMillon said of EDLP. “It builds trust with the customer, which is our number one asset, and it takes cost out of the system.”

He noted that the challenge internationally where EDLP has been executed inconsistently is how fast and where it can be implemented.

EDLP also brings simplicity to international operations where he mentioned a better job needs to be done with what he called “modular integrity,” basically making sure shelves are set with the appropriate sizes and flavors of products in the appropriate quantities base on rate of sale to ensure high in stock levels.

McMillon and other top executives participated in a brief question and answer session with financial analysts Friday afternoon where the subject of expense control and return-enhancing savings also surfaced. McMillon chimed in when Walmart U.S. president and CEO Bill Simon was asked a question about expense reductions. Simon mentioned savings in such areas as in-store signing and eliminating pigment from concrete floors, which also makes them easier to clean. McMillon highlighted ways to reduce complexity of Walmart’s vast global footprint. One example involved goods not for resale such as refrigeration equipment. The company reduced the number of specifications it had for coolers to five from 75, which meant a better price could be obtained and operations and maintenance were simplified.

Reducing expenses and transitioning more of Walmart international markets to EDLP is likely to be a recurring theme for years to come as both are central to the company’s ability to improve international returns. Walmart CFO Charles Holley counted improved international returns, especially in Brazil and China, as one of four financial priorities. The other three he mentioned included continued momentum of the Walmart U.S. and Sam’s Club businesses, growth and investments in e-commerce and effective expense leverage.

Walmart president and CEO Mike Duke said the company drew a line in the sand in the fall of 2009 when it committed to leveraging expenses and returning the savings to customers. Doing so will enable the company to gain traffic, sell more stuff and further leverage expenses.

“That productivity loop at Walmart is back,” Duke said.

Now that the U.S. stores division is producing positive same-store sales it will be easier to leverage expenses, according to Simon, because the division was managing to do so with comps that were flat to down. As for investing in price, Simon said the company would do so in areas where sales volumes benefit when prices are lowered and the gap relative to competitors can be widened.

He said usage of Nielsen data has been helpful in allowing the company to better understand marketplace dynamics.

“Nielsen is going to be a great tool for us,” Simon said. “We are lowering prices where it will drive volume, we are not just driving (price) gaps for gaps sake. The data has been very helpful in that respect.”