Inside Walmart’s masterclass in reputation rehab

A decade ago, Walmart Inc was among the most reviled companies in America.

It was criticized for wiping out mom-and-pop retailers; for not paying its workers enough while making its founding family, the Waltons, one of the richest in the US; for creating a culture of cheap, disposable goods. It was so detested that communities rallied to keep Walmart stores out of their backyards.

Today, the company is no longer corporate America’s No. 1 bogeyman. And when Chief Executive Doug McMillon steps down at the end of January, the rehabilitation of Walmart’s reputation will go down as one of the most important parts of his legacy.

It will also be among the most enduring. As Walmart enters the AI age, what its executives learned as they transformed the company’s image seems to have informed their approach to emerging technology and the people it can end up displacing.

Until the McMillon era began in 2014, the retailer’s business model was predicated on shrinking every possible cost - including keeping wages for frontline workers low. The strategy, in the company’s telling, was part of a noble mission of serving lower- and middle-income customers; offering them cheaper goods let them stretch their dollar farther, Walmart argued. As its slogan goes: “Save money. Live better.”

But the treatment of employees was turning people off its stores and hurting the business. When McMillon took over, the company had just endured several consecutive quarters of negative or flat same-store sales growth.

Rather than ignore the bad press or hire an army of PR people - tactics the company had employed in the past - McMillon decided to try something different: Invest $2.7 billion in Walmart’s workers.

That figure included pay increases, but even more critically, it created a path for employees to get promoted and move up the chain - to turn what was once considered just a low-paying job into a real career. The retailer began offering training and better benefits, including paying for education that would prepare workers for emerging jobs within the company.

When Walmart stopped viewing its frontline as quite so disposable, it attracted more ambitious, dedicated employees. Retention has improved more than 10% since 2015, the Wall Street Journal recently reported in a piece detailing the company’s efforts. Hiring for field management roles, 75% of which are filled by employees who began their careers as hourly workers, became an easier task.

Back in 2015, however, Wall Street rebelled against the plan. When McMillon announced the $2.7 billion investment during a shareholder meeting, the company’s stock lost a fifth of its value in a single day.

But a decade later, we have the receipts: Shares have returned nearly 420% on McMillon’s watch, and Walmart’s market cap has more than tripled. Even with Amazon.com Inc. nipping at its heals, Walmart remains the largest publicly traded company in the US by sales. The last 10 years at Walmart have become a literal case study in what happens when you invest in people; Harvard Business School published its research on the experiment last month.

Today, businesses have a new tool for squeezing costs: AI. But Walmart seems to be proceeding with more caution than its fellow corporate giants. “That is very much a differentiator between Walmart and the strategies at other large employers, where AI is merely a tool to lay employees off,” says Leonard Schlesinger, a Harvard Business School professor and one of the co-authors of the HBS case study on Walmart.

That’s not to say Walmart has ignored AI. In fact, McMillon has said that “it’s very clear that AI is going to change literally every job.” The company has partnered with OpenAI so customers can buy stuff through ChatGPT. AI has helped the retailer automate its warehouses and manage its supply chain, efficiencies that it says will help keep headcount flat even as sales increase.

But as AI decimates many entry-level jobs, Walmart’s past has helped it recognize how important these roles are to the company’s future. After all, McMillon started out at the company as a teenager working in a warehouse. His successor, John Furner, also started at Walmart as an hourly associate. The company is closely studying how AI will impact its workforce and trying to prepare its employees for the future. “Our goal is to create the opportunity for everybody to make it to the other side,” McMillon has said. Compare that to statements from the CEO of Accenture PLC, who said the company is “exiting on a compression timeline” those employees who can’t be retrained for the AI age.

It’s this kind of rhetoric that’s setting up a new crop of companies to take on the role of corporate bogeymen. This time around, Walmart may very well avoid being cast for the part.

BLOOMBERG