11/25/2013 04:35 pm ET Updated Nov 25, 2013

Walmart's CEO Pick Seen As An 'Indictment' Of U.S. Business


Walmart's pick for its new chief executive may be a sign that it's betting on international growth after years in which its U.S. sales have been stuck in the mud.

The world's biggest retailer on Monday tapped Doug McMillon, 47, currently heading its international operations, to be its new CEO when current chief Mike Duke steps down on Feb. 1. Walmart chose McMillon, who will also join the company's board of directors, over its U.S. chief, Bill Simon. Earlier this year, Bloomberg News reported that McMillon and Simon, a pair of longtime Walmart veterans, were the two top candidates to replace Duke as the company's fifth-ever CEO.

"It's an indictment that the Walmart U.S. business, despite what they tell us, is no longer a growth engine," Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisors, told The Huffington Post. "They're telling us that everything is okay, but when you go walk these stores you really get the feeling that it's not okay."

Walmart's U.S. same-store sales, a closely watched retail metric that compares sales of stores open for at least one year, have declined for the past three quarters, dragged down by competition from online retailers like Amazon and aggressively expanding dollar-store chains. And Walmart remains squeezed by a weak U.S. economy where consumers have little discretionary income to spend.

Meanwhile, uproar about the treatment of Walmart's U.S. workers has never been louder, as union-backed workers protest low wages. Reports of empty shelves have raised concerns about the company's logistics, once considered an unparalleled strength. In a recent visit to some Walmart stores, Sozzi described a "rotting" atmosphere typified by messiness and blank spaces where normally there would be merchandise.

In contrast, international is seen as the growth area for Walmart. International sales rose around 35 percent through McMillon's first three years running the unit, much higher than the 6.4 percent increase posted in the U.S. over that period.

Brooke Buchanan, a spokeswoman for Walmart, firmly denied that the decision to pick McMillon says anything about the retailer's U.S. business.

"Walmart U.S. is a very important business to us, and it continues to be a very important business to us," she said, pointing to high store growth in neighborhood markets and express stores, which the company has expanded in an effort to boost sales. Walmart's hulking Supercenters are still a key part of the company's domestic operations, she added.

In a statement, Rob Walton, chairman of Walmart's board of directors, praised McMillon for his success in senior leadership roles and noted that he's "uniquely positioned" to lead the company as it grows globally. "A merchant at heart, Doug has both a long history with our company and a keen sense of where our customers globally are heading next," Walton said.

McMillon presided over a period of international expansion for Walmart, leading to $135 billion in sales last year, about 29 percent of the retailer's total sales.

But his tenure atop the international division was marred by an explosive bribery scandal at the company's subsidiary in Mexico, and federal authorities continue to investigate possible violations of the Foreign Corrupt Practices Act. McMillon has served on the board of Walmart de Mexico since 2009. The company has spent upwards of $230 million handling the investigation.

Despite any lingering controversy over the bribery scandal, Walmart's decision to pick McMillon -- and to make the announcement months in advance, and right before Black Friday -- is an "in your face" move meant to show strength in Walmart's international business, said Jeffrey Hayzlett, CEO of consulting firm The Hayzlett Group.

"This sends a hell of a signal to the market," Hayzlett said. "[McMillon is] the president of international. This sends a message that there's nothing wrong."

Historically, Walmart has picked internal candidates for the CEO gig. Duke and his predecessors Lee Scott and David Glass all were veteran Walmart insiders before being elevated to the top job. Duke, who was 58 years old when he took over, was not regarded as a long-term hire and was only expected to run the company for five or six years.

Faye Landes, an analyst with Cowen and Company, wrote in a note to clients after the announcement, "We're likely to see quite a bit of musical chairs internally. The company's press release does not indicate who the new head of International will be." She also suggested Simon may choose to leave Walmart since he was passed over this time and is "unlikely to wait around to succeed McMillon."



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