What If General George Patton Was the CEO of Walmart?

In business, no one has been bolder or more of a visionary than Jeff Bezos, the CEO and founder of Amazon. Bezos understands the importance of strategy and making big moves better than any other CEO. Bezos has also mastered the concept of investing in a business long-term and forsaking larger profits. In the case of Amazon, supply chain, logistics and technology were the beneficiaries of a steady stream of capital invested in warehouses, sortation centers and fulfillment centers. Bezos realized early in Amazon’s history that customers would always want to buy products at a low price and receive the products as fast as possible—hence the focus on building a logistics network capable of delivering products in hours, not days.

A company that is attempting to think big and be strategic is Walmart. The CEO of Walmart, Doug McMillon, speaks like someone who is a strategic thinker and has approved several acquisitions and initiatives that certainly can be argued are strategic to the company. However, unlike Amazon, Walmart failed to recognize the value of e-commerce during its early days and over the years has severely underfunded its e-commerce logistics network. In order to catch up, Walmart has made some big bets in e-commerce. However, the bets aren’t paying off as well as they should. In addition, many analysts question if Walmart’s e-commerce strategy is effective.

Jet.com and the Anger of Marc Lore

On August 8, 2016, Walmart announced that it was acquiring Jet.com, an e-commerce company co-founded by Marc Lore, for $3.3 billion in cash. Lore had previously founded Quidsi, which operated as a platform for several websites like Soap.com and Diapers.com. Quidsi was sold to Amazon in 2011 for $545 million. (Amazon announced on March 29, 2017, that is was shutting down Quidsi, and Lore did not take the news well. In fact, I believe Amazon shutting down Quidsi was a key moment in Lore’s tenure at Walmart, and for all the wrong reasons.)

I am often asked if I believe Walmart should have acquired Jet.com and my reply has always been the following: Walmart acquired Jet.com to gain access to technology and a team of individuals who were willing to make bold bets using e-commerce, whereas most executives at Walmart failed to see the value of e-commerce to a retailer with 11,766 stores operating worldwide. However, any talk of Walmart running Jet.com as a separate company is lunacy; Walmart will absorb Jet.com into its own platform and kill the Jet.com brand at some point. I like what Lore and his team created at Jet.com. However, I believe Walmart should have explored a partnership with eBay, and should have approached Google, Facebook and Microsoft to ask their opinion on how Walmart could create a ‘next generation’ e-commerce service for consumers.

I am convinced that Lore drove the creation of Jet.com specifically to be acquired by Walmart. Lore knew that Jet.com on its own could never compete with Amazon. Truth be told, Jet.com would never take $1 in revenue from Amazon. However, what Lore understood better than anyone was that Walmart would struggle with e-commerce and, sooner rather than later, Walmart would come knocking on the door of Jet.com’s headquarters seeking a deal. Jet.com was founded the same year that Walmart named Doug McMillon as CEO, in 2014. A fact that didn’t escape Lore, who increased the number of interviews he gave to the media and appearances at conferences where Lore could tout the value of Jet.com and more importantly, the value of e-commerce to retailers—retailers like Walmart, for example.

What Lore didn’t display was his level of frustration at Amazon for forcing Lore to sell Quidsi. In a discussion with Lore at Jet.com several years ago, he stated that “Amazon made it clear to me that if we didn’t sell, they would just keep lowering their prices, especially on diapers, essentially driving Diapers.com out of business.” It was at that moment that I realized strategy didn’t drive Marc Lore, anger and the desire for revenge did. But anger isn’t a strategy.

I have never lost my respect and admiration for Lore, but my concerns about what might happen if Walmart acquired Jet.com have proven to be correct.

For example, I strongly disagreed with Lore’s strategy of pushing Walmart to acquire digitally native brands like Bonobos, Moosejaw and ModCloth. In my view, Lore wants Walmart to create its own version of the “Everything Store” whereby hundreds of millions of products are available for sale online. I disagree with the strategy for three reasons:

1. Amazon is the clear leader in online retail. Research shows that Amazon accounts for 40% (some statistics show Amazon accounts for over 50%) of online retail, whereas Walmart accounts for only 4.7%. Walmart will have to spend billions just to close the gap with Amazon. Walmart would be wise to invest its capital elsewhere.

2. Walmart is a company that specializes in shipping pallets of products to their distribution centers, and from their distribution centers to their stores. Walmart’s supply chain and logistics network are focused primarily on shipping pallets cost-effectively, not picking individual products from cases to be shipped directly to consumers. The amount of capital required for Walmart to build a network of e-commerce specific fulfillment centers capable of providing same-day or next-day deliveries of millions (not thousands) of products would be a Herculean task. For example, Walmart operates 150-plus regional distribution centers focused primarily on shipping pallets of general merchandise. Walmart has 20 fulfillment centers focused on e-commerce. Amazon has 110 distribution centers in the U.S. and over 300 fulfillment centers globally, giving Amazon an insurmountable advantage in e-commerce and distribution over Walmart.

3. Acquisitions should be strategic. Buying online brands like Bonobos, Moosejaw and ModCloth that have minimal name recognition and a customer base far outside the norm of Walmart customers simply doesn’t make sense. By contrast, imagine if Walmart acquired the Duluth Trading Company (DTC). DTC would be a perfect fit for Walmart and its core customer. (I know, I know. The goal was to attract more high-end customers. Sorry, they’re already shopping at Amazon.) Another acquisition that I believe Walmart should assess is Dollar General. Will there be cannibalization of some stores if Walmart acquired Dollar General? Yes. However, over a period of one to two years, the store network could be rationalized with closed stores being converted to e-commerce fulfillment centers or repurposed for other retail needs.

As I stated earlier, Lore has been motivated by anger and revenge. Lore doesn’t want Walmart to compete against Amazon, Lore wants Walmart to beat Amazon at its own game, hence Lore’s insistence on going head-to-head against Amazon. (I spoke to multiple analysts for this article. Each analyst agreed that my use of the phrase “anger and revenge” was justified when discussing Marc Lore’s desire to defeat Amazon.) Lore reminds me of two historical figures: former Secretary of Defense Robert McNamara and General George Armstrong Custer. Each man was very talented, but each man made very poor decisions at the worst times in their careers.

What Choice Does Walmart Have?

Before continuing with this article, I want to make it clear that I don’t dispute the need for Walmart to invest in its future. I don’t dispute the need for Walmart to invest in digital. In addition, Walmart has been generating impressive results like achieving 3.4% growth and growing operating income 5.5% in the first quarter of 2019. Walmart’s online sales continue to grow in excess of 30% on a quarterly basis.

However, a recent report, which proclaimed that Walmart’s e-commerce division is projecting losses of over $1 billion on revenue between $21-$22 billion in 2019, generated a tremendous amount of discussion on Wall Street and in the media. (I do not believe Walmart will lose $1 billion; I believe the number could be closer to $2 billion based on my research.)

Losses are to be expected as e-commerce is notoriously unprofitable. For example, Amazon uses an acronym called CRAP, which stand for “Can’t Realize a Profit,” to identify low-margin products it ships to customers. Amazon is slowly but surely reducing the amount of CRAP that it stocks and sells. I anticipate that Amazon will create a dollar store concept for its low-margin business. In fact, I believe Amazon could acquire Dollar General, something I wrote about in this article.

I also want to point out that Amazon was not an overnight success in e-commerce. Frankly, it took Amazon nearly 16 years to start generating profits from its e-commerce operations. I am not arguing that Walmart should ignore e-commerce. Walmart can’t only focus on its stores, and Walmart must invest in e-commerce and digital to provide their customers with the options they desire. What choice do they have? I also want to make it clear, however, that Walmart doesn’t have 16 years to get its e-commerce house in order.

Patton as CEO

We know what Doug McMillon has done as CEO and we know what Marc Lore has done at Walmart; each man has a track record. A technique I use in my consulting practice is to take historical figures or CEOs in different industries and place them in a CEO chair for the first time or at another company. For example, in the case of Walmart, how would Apple CEO Tim Cook run the company? Something even more interesting is to imagine if General George Patton was the CEO of Walmart. What would Patton see? What strategy would he implement against Amazon? I am convinced that the first thing Patton would do is survey the battlefield (industry) in which Walmart competes and request that a threat assessment be conducted of every major competitor, especially Amazon. Patton would identify the strengths and weaknesses of each competitor.

A truism in war is that you never engage an enemy where they are strongest. The Chinese general Sun Tzu stated as such in one of the most famous books on military strategy The Art of War; the book was one of Patton’s favorites. According to Tzu:

All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.

If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. Attack him where he is unprepared, appear where you are not expected.

Lore’s strategy, and the strategy approved by McMillon, can only be described as an attempt by Walmart to take on Amazon where they are strongest, e-commerce. The following quote by Patton rings true: If everyone is thinking alike, then somebody isn’t thinking. Patton would call an immediate halt to the e-commerce strategy. Patton would state that Walmart needs to have a digital strategy, but Patton would never support a strategy whereby Walmart fights a competitor that has the biggest advantage. Patton would assuredly divest Bonobos, Moosejaw and ModCloth and reduce Walmart’s e-commerce budget.

In addition, Patton would redeploy resources and capital to do the following:

1. Maximize every opportunity to leverage stores to drive value to customers. Focus like a laser on improving the grocery business, a key competitive advantage for Walmart. (If Walmart loses the grocery war to Amazon, Walmart will fail as a company. Guaranteed.) I remain incredulous at how Walmart isn’t doing more with its grocery business or increasing their focus on the food experience inside its stores like cafes and restaurants. (I’ve often wondered why Walmart and Cracker Barrel don’t partner to open Cracker Barrel stores inside applicable Walmart locations.) I’m also amazed that Walmart hasn’t invested or acquired the company DynoSafe or eDOR or introduced the use of products from PackIt to offer its customers a much better online grocery delivery experience.

2. Patton passionately believed in the importance of collaborating with other branches of the armed forces. He would be the first to push for Walmart to find strategic partnerships. For example, Home Depot is investing $1.2 billion to build and open 170 new distribution facilities across the U.S., allowing 90% of the population to have same-day or next-day delivery. Patton would argue that Walmart/Sam’s Club would benefit from a strategic partnership with Home Depot to leverage Home Depot’s expanding logistics network. There are also interesting opportunities for Walmart, Home Depot and Sam’s Club to collaborate on retail, pooling procurement spends on items that each company purchases to negotiate lower rates through increased volume, pooling transportation spends to negotiate lower rates, conducting logistics optimization studies to identify shared dedicated fleet moves, and so on.

3. Patton understood logistics better than any other general in history. I remain convinced that Walmart is missing a tremendous opportunity to create a stand-alone company ‘Walmart Logistics Services’ whereby Walmart makes strategic acquisitions of trucking and last-mile delivery companies to offer third-party logistics services as well as manage all inbound transportation shipments of products from its suppliers to its distribution centers. (I strongly advise Walmart to scour the U.S. and acquire every abandoned LTL and trucking terminal that is available on the market and leverage the properties for a rapid transit and delivery network for e-commerce.) Walmart should partner with Oracle on exploring opportunities to take trucking to the next level.

4. Patton would argue that Walmart needs to prepare to fight the next war, not the last. Amazon has already won the e-commerce war, and Amazon has every advantage over Walmart in e-commerce. Therefore, instead of buying a platform like Jet.com and integrating aspects of the platform into Walmart.com, I believe Walmart should have acquired Shopify. Why? Because it would allow Walmart to enable commerce for hundreds of thousands of small sellers who want to avoid Amazon. Even Walmart could have been a storefront on Shopify. The real value to Walmart owning Shopify is that Walmart could have leveraged its best-in-class logistics prowess to create a low-risk, high-value fulfillment ecosystem utilizing its own assets and a network of Walmart-managed strategic third parties to fulfill orders to customers. Walmart could have collaborated to create a massive distribution network across the U.S., all the while not competing directly with Amazon. I encourage Walmart to pursue discussions with Shopify. Tompkins International is the perfect strategic partner for Shopify and Walmart as it relates to distribution.

5. Food is the new oil. Walmart must engage in strategies that will influence consumer behavior by introducing new services. An interesting option would be for Walmart to partner with Zume to design and implement the next generation fresh food supply chain and revolutionize the delivery of fresh food to consumers. Fleat Network is another company I believe Walmart should partner with.

6. Patton would point out the growing importance of health care in a country with an aging population, as well as growing interest in health from Millennials and Gen Z, and encourage Walmart to establish partnerships with hospitals, clinics, specialty clinics and nutrition centers whereby such facilities are opened inside Walmart stores. (I am convinced that grocery stores will be severely disrupted in the U.S. over the next 10 to 15 years. Walmart would be wise to identify a strategy for how to convert its retail space for groceries into high-margin leases. Crazy as it sounds, the future of Walmart may be a leading real estate play for health care.) Opening gaming centers inside Walmart stores is another option the company should consider. (I’m amazed Walmart doesn’t do more with gaming.)

7. Patton would make the argument that instead of trying to deliver only groceries and general merchandise to consumers, Walmart should design and implement a strategy to “own the home.” In essence, acquire the company Enjoy and offer consumers services for setting up smart homes and teaching consumers how to use their devices. Walmart could also provide its own appliance home repair capabilities. (Walmart should give serious consideration to either partnering with Best Buy to open Geek Squad counters inside Walmart stores, or Walmart should partner with Enjoy with the goal of creating a better version of Geek Squad.)

8. Patton would greatly reduce Walmart’s global presence in the 77 countries it currently has operations and instead focus capital in the following key regions: North America (United States, Canada and Mexico), China and India.

The real genius of Patton was that his tactics emphasized violent action and speed to exploit every possible opportunity on the battlefield to kill more enemy soldiers and/or seize strategic locations. Patton preferred to attack and force the enemy he was fighting to react to his plans rather than the reverse. I challenge anyone to come up with a single example where Walmart has forced Amazon to react to anything. Does anyone honestly think Amazon is afraid of Walmart’s e-commerce efforts?

Patton would point out to Walmart’s executive team that they’re overlooking the possibility of Alibaba making a large-scale strategic pivot into the U.S. For example, acquiring a retailer and leveraging Alibaba’s prowess in supply chain, logistics and last-mile delivery to wreak havoc. (Imagine if Alibaba signed a strategic partnership with Aldi? Or acquired Albertsons, Kroger or Costco?)

Patton would focus executives on creating a new game for retail versus implementing strategies that Amazon implemented years ago. As I stated earlier, Walmart appears to be fighting the last war instead of taking the lead in being able to fight the next war. Walmart must find a way to knock Amazon back on its heels. I can state with no hesitation that Patton would identify with Greg Foran, president and CEO of Walmart U.S., and would listen intently to Foran’s suggestions. Note to Walmart: When Greg Foran speaks, listen and do whatever the hell he says.

The Sand Is Leaving the Hourglass

Patton isn’t the CEO of Walmart and never will be. However, there are lessons to be learned when contemplating what Patton would do if he was the CEO. McMillon must step back and evaluate Walmart’s strategy. Losing $1 to $2 billion annually on an e-commerce strategy that has no chance of putting a dent into Amazon isn’t sustainable or necessary. This doesn’t mean give up on e-commerce or digital. It simply means identifying the exact e-commerce strategy that will meet the needs of Walmart’s customers and increase Walmart’s chances of providing a better customer experience and increasing its market share.

Lest anyone think I have been too harsh on McMillon, I haven’t. I wrote in this article that McMillon is a viable presidential candidate in 2024. McMillon has done an excellent job as the CEO of Walmart. However, I strongly advise Walmart’s Board of Directors to replace McMillon as CEO no later than 2021. (Research has identified that the optimal length of tenure for a CEO is seven years.) Greg Foran, or Sergei Goncharov of X5 Retail Group, should be at the top of the list of candidates to replace McMillon.

As for Marc Lore, I have said on the record since 2018 that I don’t believe Lore will be at Walmart longer than 2021, but he could depart sooner. I think Facebook, Microsoft, Uber or Google would be wise to hire Lore, especially Facebook which I believe is the only company capable of beating Amazon at e-commerce. It is also plausible that if losses mount in Walmart’s e-commerce business at the expense of other initiatives that would be more beneficial to Walmart, Lore may have no choice but to resign. (I don’t want to see that happen.)

I believe the best thing Walmart can do with Lore is put him in charge of running Flipkart and reevaluate Lore’s strategy for e-commerce in the U.S. Patton abhorred divided leadership like what exists at Walmart and Flipkart. Patton believed divided responsibility means no one is responsible. Lore is the best and brightest mind in e-commerce at Walmart, and at nearly $16 billion plus, Flipkart is Walmart’s largest acquisition. Lore would retain his title as president and chief executive officer of Walmart E-Commerce; he would simply become the CEO of Flipkart as well. Is it too much to ask of Lore? No. (Another option I would support is placing Nathan Faust in the CEO role at Flipkart, as Faust and Lore have a proven history of working well together and accomplishing great things.)

One final comment—there is only one “Everything Store” and that’s Amazon. Walmart doesn’t have to beat Amazon at its own game. Walmart needs to create a new game and force Amazon to play on its terms. Going head-to-head against Amazon in e-commerce is certainly bold. It’s also the wrong strategy.