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Wal-Mart CEO Doug McMillon Faces Off Against Retail Industry Headwinds

By Motley Fool Staff – Sep 8, 2016 at 8:18AM

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The company has to navigate through major challenges with competition coming from all sides.

Young Wal-Mart (WMT 0.43%) CEO Doug McMillon has been the subject of much praise. As a true company man who has spent essentially his entire professional career with the retailer, he may be the most qualified person to lead Wal-Mart through its current challenges as intense competition and shifting consumer trends pressure sales.

In this clip from Industry Focus: Consumer Goods, Motley Fool analysts Vincent Shen and Sarah Priestley discuss the current retail environment and what it means for the country's leading big box store.

A full transcript follows the video.

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This podcast was recorded on Aug. 30, 2016.

Vincent Shen: Let's paint a little bit of a picture here. I think some people are familiar with the fact, once you reach the scale, similar to McDonald's, that Wal-Mart has reached, doing anything that really moves the needle for the company becomes really challenging. But, before McMillon took the helm and became, potentially, the most qualified CEO since Sam Walton, what was Wal-Mart facing? And then, we can get into the steps that he took.

Sarah Priestley: I would say Wal-Mart essentially came to prominence by saturating markets. They were the most convenient option at the lowest price. But the problem is, now, they have competition from all sides. From the lower end, Dollar General and the dollar stores' increasing popularity. Costco and Target as the big-box retailers. Kroger, they've really upped their game in terms of organic and fresh. I think Wal-Mart missed the mark on that, initially. If you look, a decade ago, Wal-Mart was 15% to 18% cheaper on groceries than Kroger. The gap is now 4% to 7%. So that's getting a lot shorter. And, the other thing is, in terms of convenience, Walgreens and CVS are leveraging their geographic dominance and offering groceries there, so people have another alternative. 

More than all of that, though, is online. If you look, Amazon, 2012 to 2015 doubled their sales. Wal-Mart grew their sales by 8.6% in the same period. It's the Amazon effect. There's definitely online sales, which is taking away from Wal-Mart revenue.

Shen: Yeah, with that kind of growth ... unfortunately, consumer spending has not been growing at that rate. That is Amazon taking share, especially, from a lot of the traditional retailers, Wal-Mart being, in my opinion, the epitome of that.

Sarah Priestley has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Costco Wholesale. The Motley Fool recommends CVS Health. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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