At NRF Retail Converge, Sam’s Club President and CEO Kathryn McLay discussed the challenges and opportunities presented by the COVID-19 pandemic, and how they have affected — and are continuing to affect — her organization’s operations and prospects. Rodney Sides, global leader of Deloitte Insight and vice chairman, Deloitte LLP, moderated the session.
Sides began by noting that profitability in the retail industry, both in terms of EBITDA and median return on assets, has noticeably declined over the past decade, driven primarily by changing consumer behavior. “Consumers are demanding more and more,” he said, “and it’s harder to capture value in return.”
Which raises an important question: Is this a trend we can do something about? With that, Sides introduced Kathryn McKay, CEO of Sam’s Club, the members-only division of Walmart that is independent of the parent corporation. Last year Sam’s Club had over $64 billion in revenue and grew more than 8 percent over its last fiscal year. What, Sides asked, made Sam’s Club so successful during the pandemic?
president and CEO of Sam's Club
A nuanced network
McLay, who stepped into her new role as CEO only three months before the pandemic broke out, noted that the company’s format — members-only, with an emphasis on large packaging — helped protect its customers to some extent from the hoarding and shortages that plagued the average grocery store in the spring and summer of 2020.
“We buy deep in large package sizes,” she said. “Toilet paper in 45-plus-roll packaging, for example, was very interesting to some people.”
As it has for the entire industry, logistics became a central issue for Sam’s Club as the landscape changed. “In the past,” McLay said, “we had two kinds of channels. One was ecommerce direct to home, supported by fulfillment centers. The other was the in-club channel. We have learned that it’s a more nuanced network than that.”
The company found itself, she said, diverting merchandise from fulfillment centers to stores, and shipping from the club to the home. “Then we opened up curbside pickup. The initial goal was to delight the members, with no specific target numbers — the only performance metric we used was net promoter score. Then orders grew quickly.”
The overall lesson the Sam’s leadership team learned from this was, “Put the members at the center. Make sure you’re delighting them, wherever they are. Use all the assets in the network, and don’t be blinkered by the role of traditional facilities.”
The team is constantly looking for ways to develop a more loyal relationship with the members. “A period of growth in membership and in renewals,” she said, “told us we were headed in the right direction.”
Creating value
Sides then asked McLay what she — and, by extension, Sam’s Club and Walmart management in general — thinks about the larger mission of the company, beyond its ability to make a living and stay in business.
“My experience in retail,” McLay said, “has taught me that if you put profit as your primary goal, you fail. You have to start with, ‘How do I create value?’
“For us, if you boil it down to the essence, it’s great items at disruptive prices. You build out from there. Then we have 100,000 associates — we need to make sure they have great jobs and great careers. Beyond that, we look at how we relate to the earth. We’re proud that we’re a sustainable player. But the heart of it is creating value for members, and from that you generate a profit.”
Not that any of this is easy. “The channels we use now have a different profile,” she said. “You have to figure it out. Part of it is automation and technology. Part of it is simplifying processes in the clubs themselves. If you’re clever and smart, you can grow and be profitable at the same time.”
And the members, she noted, can help. “We’ll do a reminder to a member if they fail to buy a frequently bought item. Say Rod always buys bananas. We’ll say, ‘Hey, Rod, did you forget the bananas?’ Just by doing that suggestion based on purchase history, the uplift in sales is significantly more than what you would see with a ‘suggested order’ in an online transaction.”
Lessons learned
Toward the end of the conversation, Sides asked McLay how the pandemic had changed her relationship with her team members.
“We had a relatively new leadership team,” she said. “We set up a daily hour-and-a-half leadership team meeting that became an engine for change. There was no agenda, no PowerPoints — we’d just go around the room. It made for quick decision-making and clear, concise communication out to the field.”
Overall, she said, she and the team learned that you have to take a two-level view of things. “On the tactical, day-to-day side, how do you deal with whatever’s come up to deal with? Looking beyond that, how do we come out of this with a strong business that can grow for the future? You have to do both.”
Finally, he asked McLay if, looking out over the next few years, she thought the retail industry would have a chance to recoup for a return-on-assets basis. McLay’s answer, not surprisingly, reflected the need to a changed world and a new era in customer expectations.
“It’s up to us,” she said, “to be clever, and to continue to adapt to the environment. You have to be creating value for members in a way that delights them.”
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