Walmart’s CEO is Stepping Down. Here’s What Many Get Wrong About Its RGM Strategy.
- itdev9
- 7 hours ago
- 12 min read
Doug McMillon’s departure is a moment to look past outdated perceptions and analyse the sophisticated revenue growth engine he built. He aimed to eliminate the “hidden costs” of promotions that plague most retailers in Europe and in the US.
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Part 1: The Walmart You Think You Know (Is Dangerously Out of Date)
A. The CEO change at Walmart
After a transformative 11-year tenure as CEO, during which Walmart's stock rose over 300 percent, Doug McMillon is stepping down. He hands the reins to John Furner, the current CEO of Walmart U.S. and a 30-year company veteran who began his career in 1993 as an hourly associate. This move signals a profound commitment to strategic continuity, solidifying the "people-led, tech-powered omnichannel" model that McMillon made his legacy.
B. The Ghosts of Failures Past
For European FMCG insiders, the name "Walmart" often evokes a different, less flattering narrative. The perception is not one of tech-powered dominance, but of a clumsy American giant that failed to conquer the continent. This view is almost entirely shaped by two high-profile "ghosts" of Walmart's European history.
The first and most infamous is Germany. Walmart's nine-year struggle, culminating in a 2006 retreat with a pre-tax loss of $1 billion, is a classic business school case study in failure. The post-mortem reveals a fatal mix of strategic blunders:
Cultural Incompatibility: A rigid, US-centric corporate culture was a poor fit for German labour norms. Attempts to import American-style anti-union stances and ethics codes (such as those forbidding inter-employee dating) clashed with German laws and worker expectations.
Customer Misunderstanding: The company fundamentally misread the German shopper. In a market already dominated by the hyper-efficient hard-discount model of Aldi and Lidl, German consumers were not impressed by Walmart's version of "every-day low prices". Furthermore, they were reportedly "annoyed" by American-style "exceptional service," such as forced smiling and greeters.
Flawed Market Entry: Underestimating the strength of local competitors , Walmart entered the market via a weak acquisition of the Spar hypermarket chain, leaving it with a portfolio of poor, run-down locations.
The second ghost is the United Kingdom. While Walmart's 1999 acquisition of Asda was far more successful, its 2020 sale of the chain to the Issa brothers and TDR Capital marked a definitive strategic retreat from Europe.
The consequence of these events is that for many European experts, the perception of Walmart is frozen in 2006. It is seen as a case study in failed international expansion. A low-tech, culturally deaf "big box" retailer that was outmaneuvered by smarter, more agile local players.
This perception is dangerously out of date. The lessons learned from these failures are precisely what catalysed the sophisticated transformation under McMillon. The Walmart of 2025 is not the company that failed in Germany; it is a data-driven, omnichannel juggernaut.
Part 2: The "People-Led, Tech-Powered" Machine McMillon Built
A. The Transformation under McMillon
McMillon's core legacy was the transformation of Walmart’s identity, encapsulated in his "people-led, tech-powered" mantra. Crucially, he understood that the two components must be executed in that specific order.
The "people-led" component was the strategic enabler. In 2015, McMillon faced sceptical investors and announced a multi-billion dollar investment in his workforce. This included raising the entry wage (first to $9, then $10, with the U.S. average now at $18), and launching massive training and education programs like the Walmart Academy and the debt-free Live Better U college program.
This was not corporate philanthropy. It was a cold, strategic calculation. As McMillon reportedly told investors in 2015, "You clean up your house before you invite people over" . A disengaged, high-turnover, minimum-wage workforce cannot execute a sophisticated, high-service omnichannel model. The investment in associates was the necessary precondition for the "tech-powered" revolution to function. It was an investment in the execution excellence required for complex tasks like fulfilling curbside pickup orders accurately and managing ship-from-store inventory.
B. A "Tech-Powered" Omnichannel Machine
With this foundation in place, McMillon built the machine itself, which rests on three pillars that European experts often underestimate.
Pillar 1: The Omnichannel Ecosystem McMillon's tenure is when Walmart became, as he stated, "truly an omnichannel retailer". The strategy fused its 4,600+ U.S. stores with a world-class e-commerce platform. The stores are no longer just "stores"; they are "hubs" and "fulfillment centers". This "ship-from-store" and curbside pickup model leverages Walmart's physical footprint (with stores within 10 miles of 90% of the U.S. population) into a last-mile delivery advantage that pure-play e-commerce rivals cannot easily replicate.
Pillar 2: The Next-Generation Supply Chain Walmart's capital expenditure has been stepped up from $15 billion to $25 billion annually, with much of that increase dedicated to "automated storage and retrieval systems" in its supply chain. This "next generation" network uses AI, data, and robotics to reengineer its supply chain, improving inventory accuracy and flow for both stores and e-commerce. The company's goal is to have 55% of its fulfillment volume processed through automated centers by FY26.
Pillar 3: The Hidden Profit Engine: Walmart Connect This is the most critical, and most overlooked, piece of the puzzle. Walmart is no longer just a retailer; it is a formidable advertising technology company.
Its retail media network (RMN), Walmart Connect, has become a massive, high-margin business. In the last fiscal year, Walmart reported $4.4 billion in global ad revenue (up 27%), with Walmart Connect in the U.S. growing at a blistering 24% to 31% per quarter.
This ad business has fundamentally re-written Walmart's RGM model. McMillon explicitly stated on an earnings call that the high-margin revenue from businesses like advertising provides "flexibility" to absorb costs—such as tariffs or inflation—and invest in lower prices for customers.
This creates a powerful, self-funding flywheel that is almost impossible for traditional retailers to compete with:
FMCG suppliers, needing to reach Walmart's massive customer base, pay to advertise on Walmart Connect.
Walmart collects this high-margin ad revenue.
Walmart uses that profit to subsidise its core EDLP price investment, lowering prices on the shelf even further.
Lower prices drive more customer traffic, both in-store and online.
More traffic generates more ad inventory (page views, in-store screens) and more valuable first-party data, making Walmart Connect more valuable to suppliers.
This forces suppliers to increase their ad spend, which starts the entire cycle over.
This is a sophisticated, self-funding RGM machine that goes far beyond the simple retailer-supplier price negotiation.
Part 3: Deconstructing Walmart's RGM: Why EDLP is a Strategy of Trust, Not Just Price
A. The "Hi-Lo" Promotion Game
To understand Walmart's RGM, one must first contrast it with the dominant model in Europe and most of the rest of the world. Many retailers still operate on a "High-Low" (Hi-Lo) pricing model. This strategy relies on a high everyday shelf price, which is then punctuated by deep, temporary promotions (e.g., "30% off," "Buy One, Get One Free," or loyalty-card-specific deals). The strategic goal is to use the "high" price to build a margin baseline and the "low" promotion to drive short-term, incremental volume spikes.
B. The Walmart Model: EDLP as a "No-Game" Strategy
Walmart’s "Everyday Low Price" (EDLP) philosophy is not simply to be the cheapest, but to be the most trusted on price.
The Hi-Lo model is, by its nature, a "game." It trains customers to distrust the base price, knowing that a promotion is always coming. It encourages them to time their purchases and hunt for deals. Walmart's EDLP is an anti-game strategy.
Doug McMillon articulated this philosophy perfectly at a past investor meeting: "A thing that I believe deeply is that you never want to create a situation where customers think they are playing a game... If they believe they have to shop on Wednesday or do this or that... to get a deal, you have lost... The power of Walmart and the power of EDLP was that people stopped making a choice about where they were going to shop because we had earned their trust" .
This "trust" is not a soft metric; it is a hard RGM asset. It builds loyalty by removing price volatility and the customer's fear of "missing a sale".
C. The "Rollback": A Disciplined Exception, Not a "Sale"
The obvious objection is "Rollback." Walmart stores are full of "Rollback" signs, which look just like promotions. A Rollback is intended as a tactical tool designed to support the EDLP strategy.
It differs from a Hi-Lo promotion in several key ways:
No Additional Customer Ask: A Rollback is a simple, temporary price reduction, clearly marked with a "Was/Now" price. It does not require the customer to clip a coupon, use a loyalty card, or "buy one, get one free" (BOGOF). The lower price is given to everyone, unconditionally. Offering unconditional discounts is often highly undesirable for brand owners, yet this approach can be advantageous for retailers.
No Theme or Event: A Rollback is not a "Christmas Sale" or a "January Clearance Event". It is a pure price signal, detached from seasonal marketing, reinforcing the idea that the price is low because it is low, not because of a special occasion.
Supplier-Funded Urgency: It is a strategic tool, often funded by suppliers, to create temporary urgency , drive trial for a new item, or help clear excess inventory without "breaking" the customer's long-term trust in the base EDLP.
During the recent inflationary period, Walmart's use of this tool was telling. As new CEO John Furner noted, Walmart U.S. had 7,000 Rollbacks active at one point—up 45% year-over-year. This was not a panic-driven shift to Hi-Lo; it was a strategic investment in price to signal value to concerned shoppers and reinforce its EDLP credentials.
Part 4: Does Walmart’s Model Solve the "Hidden Costs" of Promotions?
A. The Core Problem with Hi-Lo Promotions
The RGM "game" of Hi-Lo promotions, so common in many markets, is fraught with peril. At Accuris, our analysis of years of FMCG data shows that promotional success is often an illusion. Apparent sales "uplift" frequently masks a series of "hidden costs" that quietly erode value.
Our benchmark studies show that 68% of the uplift from a typical promotion is zero-sum, back-and-forth switching, and that a staggering 94% of all promotions do not actually increase the category's total value.
For the sake of this analysis, we will focus on two of the most destructive hidden costs that are endemic to the Hi-Lo model:
"Subsidised Base": This is the practice of giving discounts to loyal, regular shoppers who would have bought the product anyway at the full price. This is not incremental volume; it is pure, self-inflicted margin erosion.
"Stockpiling": Also known as "pantry loading," these are purchases "brought forward" by a deep discount. A shopper buys 10 units on deal instead of their usual 1. This volume spike is then "offset by lower sales in the following weeks" as the shopper works through their pantry stock.
B. How Walmart's RGM Solves for Hidden Costs
Walmart's entire EDLP and Rollback model is structurally designed to eliminate these two specific hidden costs.
Solving the "Subsidised Base" The Hi-Lo model is a machine for subsidizing your loyal customer base. It trains them to wait for the deal. Walmart's EDLP model, by refusing to play the game , is the ultimate defense against this. Because the customer trusts the everyday price, they buy on their own replenishment cycle, not the retailer's promotional cycle. Walmart never has to pay a promotional price to a loyal customer who was going to buy anyway, fundamentally protecting its base margin in a way Hi-Lo retailers cannot.
Solving "Stockpiling" Stockpiling is a direct, rational response to Hi-Lo price volatility. A deep BOGO discount incentivizes the shopper to buy more than they need. This creates massive demand "spikes" and "troughs" (the bullwhip effect) that are disastrous for supply chain planning and efficiency.
Walmart's EDLP removes the incentive to stockpile. Price stability creates demand stability.
This brings us to the core of the "tech-powered" machine. This demand stability is the key that unlocks the multi-billion dollar investment in supply chain automation. Walmart's automated warehouses run at maximum efficiency precisely because they are fed by predictable, stable demand, not the wild, volatile demand of a Hi-Lo retailer. The operational savings generated from this supply chain efficiency are then used to further fund the EDLP model. It is a third, powerful, virtuous cycle connecting RGM to operations.
C. The RGM Model Comparison (The Core Argument)
The strategic trade-offs become clear when the two models are compared side-by-side.
Table: RGM Model Strategic Comparison
RGM Metric | "Hi-Lo" Promotion Model | Walmart EDLP + Rollback Model |
Primary Goal | Drive short-term incremental volume. | Build long-term trust; drive operational efficiency. |
Customer Behavior | Trains shoppers to wait for deals. | Builds loyalty; creates predictable shopping patterns. |
Risk of "Subsidised Base" | High. (Loyal shoppers buy on deal). | Low. (Base price is already "the deal"). |
Risk of "Stockpiling" | High. (Shoppers pantry-load on deep cuts). | Low. (Consistent pricing removes the incentive). |
Supply Chain Impact | Volatile demand (bullwhip effect). | Stable, predictable demand. |
Customer Trust | Low. (Shoppers "play the game"). | High. (Shoppers trust the price). |
Part 5: Advanced RGM: Managing "Upgrading" and "Downgrading" with a Tiered Private Label Portfolio
A. Introducing the "Mix" Levers: Upgrading and Downgrading
Revenue Growth Management is not just about price and promotion. The second, and often more profitable, lever is mix. This is the management of the value of the basket.
Within the Accuris Source of Business® framework, we measure two critical components of mix :
"Upgrading": The measurable, positive-margin event of a shopper moving to a higher-value, higher-margin product. This is one of the only two sources of true category growth.
"Downgrading": The negative-margin event of a shopper trading down to a cheaper, lower-value alternative.
Walmart's private label (PL) strategy is a masterclass in managing these two levers to optimize RGM.
B. Walmart's Private Label Ladder
The outdated perception of Walmart might assume its private label offering is a monolith of "cheap generics." The reality is a tiered portfolio designed to manage shopper migration across the value spectrum.
Tier 1 (Defensive RGM): "Great Value"
"Great Value" is Walmart's flagship value-tier brand, present in nearly 73% of U.S. households. Its RGM function is primarily defensive. During inflationary periods, as shoppers face pressure, they "downgrade" from higher-priced national brands. "Great Value" is perfectly positioned to catch these shoppers. Instead of losing the customer and their basket to a hard-discount competitor, Walmart keeps the shopper in its ecosystem. It is a strategy to manage the "downgrade" and own the shopper's trade-down moment.
Tier 2 (Offensive RGM): "Sam's Choice" & "Bettergoods"
This is where Walmart's RGM strategy becomes offensive. "Sam's Choice," named after Sam Walton, has long been Walmart's premium private label, offering products like whole bean coffees and Swiss chocolate.
The launch of "Bettergoods" in 2024 took this to a new level. "Bettergoods" is a specialty brand, with 70% of its items priced under $5 and focused on on-trend attributes like "plant-based," "gluten-free," and unique flavor profiles (e.g., Creamy Corn Jalapeno Chowder).
This brand is a pure "Upgrading" play, perfectly aligning with the Accuris definition. One analysis of the strategy stated its explicit goal is to "encourage customers to upgrade from basic products to premium offerings within Walmart's private brand portfolio" . "Bettergoods" is not designed to just catch trade-down; it is designed to attract new, higher-income shoppers and actively drive margin expansion.
Walmart has built a complete "ladder" to manage shopper mix. It uses "Great Value" to catch inevitable "Downgrading" and uses "Bettergoods" to actively drive profitable "Upgrading". This is an advanced form of managing "Cannibalisation" —Walmart would much rather cannibalize a low-margin national brand with its own high-margin "Bettergoods" premium product.
Part 6: Conclusion: A Legacy of Discipline and the Path Forward
A. McMillon's True Legacy: A Disciplined RGM Machine
Doug McMillon's 11-year legacy is not just a 300% stock rise. It is the complex, difficult transformation of a 20th-century retailer into a disciplined, "people-led, tech-powered" fortress.
He built an RGM machine that is structurally insulated from the "hidden costs" of promotion that plague its "Hi-Lo" rivals. Its strategy—grounded in trust , funded by a high-margin advertising business , enabled by an engaged workforce , and executed by a world-class automated supply chain —is its most profound and durable competitive advantage.
B. The New CEO: Continuity and Execution
The choice of John Furner to succeed McMillon is the final signal of this discipline. Furner is the ultimate insider, a 30-year "lifer" who has run Sam's Club, worked in merchandising in China, and, most recently, led the entire Walmart U.S. segment.
This choice signals continuity. Furner's resume makes him the perfect operator to run the machine McMillon built. As CEO of Sam's Club, he demonstrated his belief in the "people-led" model by investing in wages before the revenue followed. As U.S. CEO, he led the "digital acceleration" and proved his RGM-savvy by strategically deploying "Rollbacks" to fight inflation. He is not a "change agent"; he is the executor of a highly successful, data-driven strategy.
C. The Takeaway
Walmart's entire model is built on a ruthless, data-driven understanding of its "Source of Business®". It is built on the refusal to fund value-eroding activities—like subsidizing loyal shoppers or paying for the supply chain chaos of stockpiling—that its competitors accept as "the cost of doing business."
While not every company has Walmart's scale, every company can adopt its discipline. The first step is to move beyond averages, assumptions, and misleading headline "uplift." The first step is to stop guessing and get a true, granular diagnosis of where your promotional sales are really coming from.
Before you can build a strategy to drive true category growth and "Upgrading," you must first understand your 'Source of Business®'.