Meet the Woman Running Walmart’s Biggest Deal Ever

Before Judith McKenna took over, the mega-retailer’s international business was routinely ignored. Then came the company’s $16 billion stake in India’s Flipkart. Does she have your attention now?
September 25, 2018, 10:30 AM UTC
Celeste Sloman for Fortune
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EVERYTHING AT WALMART IS SUPERSIZED—including its international business.

Walmart International is bigger by sales than JPMorgan Chase, Boeing, and Google’s parent company, Alphabet. Even Coca-Cola, Delta Air Lines, and Facebook combined can’t touch its scale. The retailer’s dealings abroad generate more revenue than the GDP of Ukraine and surpass the value of all trade conducted between the U.S. and U.K. in a year.

But here, perhaps, is the most surprising stat of the bunch: Walmart’s $118-billion-in-revenue international operation is the biggest business in the world that no one seems to pay very much attention to at all.

Among his 1,900 institutional investor clients, Bernstein’s Brandon Fletcher can count on one hand the number of in-depth conversations he’s had about the company’s footprint outside the U.S. The business is a victim of the law of large numbers, the kind of problem unique to a very big fish that lives not in a small pond but a vast ocean—in this case swimming amid the retailer’s gargantuan half-a-trillion dollars in sales. “Investors just kind of overlooked it,” says Telsey Advisory Group analyst Joe Feldman.

Until this year, that is.

Since April, Walmart has undertaken a flurry of deals that are not only transforming the face of its international business, but are, by extension, also rewriting the company’s place in the retail landscape. First Walmart agreed to merge its U.K. business Asda with J Sainsbury (it will hold 42% of the combined entity). Then, just over a month later, it said it would off-load the majority of its Brazilian operation to a private equity firm. The moves are a retrenchment in markets that were part of Walmart’s global footprint for some two decades.

But those deals look small in comparison to the $16 billion Walmart spent in August for an approximately 77% stake in Flipkart, India’s biggest online retailer. The investment, which Bryan Roberts of retail marketing firm TCC Global calls “eye wateringly expensive,” is the biggest in Walmart’s history and the largest ever in the pure e-commerce sector (just in case there weren’t enough superlatives in the mix already).

Judith McKenna in her conference room at Walmart headquarters in Bentonville, Ark.Celeste Sloman for Fortune
Celeste Sloman for Fortune

Walmart has aspired and toiled—and succeeded—in its quest to become not just the biggest retailer in the world but the biggest company on the planet, period, and has done so by obsessing over how to grow its top line. Then, in a span of just a few weeks, it seemed to throw the scripture handed down by founder Sam Walton out the window, by essentially trading a reasonably stable, profitable business in the U.K. for a money-losing venture in India that may take a decade to even begin to show signs of paying off.

“It’s a series of jaw-dropping moves,” says Neil Stern of retail consultancy McMillanDoolittle. “There’s a willingness to make these huge bets and to think about retail differently.”

Judith McKenna, a Brit who has headed up the international business since February, tends to lean a bit more toward classic English understatement: “It’s certainly been a busy four months,” she said at an investor meeting in June—although later this summer at Walmart headquarters in Bentonville, Ark., she admits, “I’m not necessarily recommending it as a way to come into a job.”

Indeed, McKenna and her team bear a Walmart-size responsibility with Walmart-size consequences. In reprioritizing the company’s global footprint, they are effectively placing bets on the future of retail. “We’ve made no secret that in certain markets we’ll do no more bricks and mortar,” McKenna says—a striking admission from a company that built its U.S. fortunes on the back of big-box retailing. Instead, Walmart is redeploying its capital in the e-commerce sphere, a move driven in large part by its existential battle with Amazon. In the U.S., Walmart got serious about that fight in 2016 with its $3.3 billion acquisition of online retailer Now it is preparing to duke it out across the globe with its Flipkart deal, investments in and Dada-JD Daojia in China, alliance with Rakuten in Japan, and acquisition of online marketplace Corner-shop in Mexico and Chile.

The approach looks very different from the Walmart of the past, which was prone to measure success by how many countries it had crossed off its list. The culture of Walton stood for the supercenter store model, explains Rick Bendel, Walmart’s onetime international chief marketing officer, but “that isn’t the credential one needs to build the next phase of Walmart.” Now it’s McKenna’s job to transform the retailer from an American company that happens to have an international business into a truly global enterprise.

THE REVIEWS of Walmart’s international achievements read a bit like the Rotten Tomatoes page of a B action movie: “Very spotty,” says Edward Jones analyst Brian Yarbrough. Harvard Business School professor Rajiv Lal calls it “a mixed picture,” while industry consultant Craig Johnson weighs in with “checkered.” And bluntly from Wolfe Research’s Scott Mushkin: “It’s just not good.”

It says a lot then about the challenges of expansion that despite the tepid ratings, Walmart’s international performance is probably the closest thing the industry has to an American success story. “Even in the struggles they’ve had, they’re still doing better than any U.S. retailer has done in the modern era,” says Matt Hamory of consulting firm AlixPartners.

Which all goes to say that expanding beyond borders—a process tinged with the subtext of ego, nationalism, and culture clash—is colossally hard. “Because companies have been so successful in one culture,” explains Bill Bishop of consultancy Brick Meets Click, “it’s impossible for them to believe that they’re not going to be successful in another.” Some executives simply cannot process the fact that to consumers beyond their home market, they are often viewed as just another big box selling someone else’s products.

The allure of growth, though, has been too tempting for most companies to ignore. Walmart got serious about the potential for global expansion in the early 1990s when Wall Street started to question whether it could continue its double-digit percentage revenue increases. Management landed on a strategy that dictated that a third of new growth would come from abroad.

Walmart’s first store outside the U.S. was a Sam’s Club that opened in Mexico City in 1991. Mexico would go on to become the company’s most successful international market, followed by Canada, where it bought a struggling chain of stores in 1994 and turned it around.

But as the company pursued more acquisitions to hit its aggressive targets, criticism followed.

“It was growth for growth’s sake,” says Yarbrough. To some, the deals seemed more opportunistic than deliberate. Says former Walmart executive Bendel, “It’s a little bit of an overstatement to say they had an international strategy—other than acquiring businesses in new markets.”

Then came Germany. “They learned a horribly brutal lesson there,” says Roberts of TCC Global. After entering the market in 1998, Walmart insisted on bagging groceries for customers, which in Germany signaled a higher-end shopping experience and eroded Walmart’s value proposition. Clerks were required to smile at customers—not socially acceptable in the country—and Germans even had trouble pronouncing the company’s name. Walmart clashed with local unions and just generally struggled to give shoppers a reason to switch from the discounters they already knew and liked. Walmart pulled out of the country in 2006.

“I think there was a sense of big lessons learned,” says Bendel, “and the consequence was being extremely careful not to interfere too much.” The company has become more thoughtful about when to deploy the Walmart name, operating as Seiyu in Japan, for example, and using Lider as one of its brands in Chile—an unusual move given the number of Starbucks and 7-Elevens blanketing the globe.

Yet for years, Bentonville couldn’t bring itself to truly release its grip. “We liked complete control,” explains McKenna. “We liked ownership.” But as e-commerce—an area in which Walmart lacked expertise—became a growing force globally, the company began to reconsider. Add the lure of massive emerging markets, which promise untold profits to those savvy enough to approach them with the right partners, and the retailer came to the realization that it could no longer do everything itself. Now with its various stakes and holdings around the globe, in a lot of places Walmart is starting to look more like an investor than a retailer. “I think we’ll get to a place where we aren’t making all the day-to-day decisions,” says Richard Mayfield, CFO of the international division. Partnerships, he says, “are not something that’s in our DNA—we’re learning.”

MCKENNA IS IN the unique position of knowing what it’s like to be on both sides of a Walmart acquisition. She was working as the financial controller for British grocer Asda when in 1999 Walmart acquired it for $10.8 billion—the company’s biggest deal ever until Flipkart.

Her rapid progress up Asda’s ranks, to CFO and then COO, drew the attention of the grocer’s parent, but McKenna initially brushed off questions about whether she’d be game for a broader role.

“I didn’t really want to do anything else,” she says. “I thought I had the best job in the universe, and I had broken every ceiling going, and I was quite happy with it, thank you.” During a recent talk about career development at company headquarters, she described the inclination as an unwillingness to put your head above the parapet—that’s the “castle bit on a castle,” she clarified for the blank stares in the room. If you put your head above it, she explained matter-of-factly, you’re likely to get shot.

When Asda’s CEO left in 2010, McKenna kept coming up as a possible successor in the British press, which covered the U.K. grocery sector with the same breathlessness most tabloids reserve for celebrity breakups. McKenna says she didn’t feel like she had the operations experience and took herself out of the running.

File: Sainsbury Buys Asda In 7 Billion-Pound Deal
Customers pay for their shopping at self-serve checkout counters inside an Asda supermarket.Simon Dawson — Bloomberg via Getty Images
Simon Dawson — Bloomberg via Getty Images

But the episode got her thinking that maybe it was time to peek over the parapet after all. In 2010, she put her hand up to run a newlyformed small stores division, and the next time she was approached about a move to Bentonville—and a strategy and development role—she went for it.

A few years in, she found herself in the middle of a crisis. Walmart U.S.’s same-store sales, a critical industry metric, had fallen for five quarters in a row. Greg Foran, president and CEO of Walmart U.S., brought McKenna on as his operations chief to help fix the business. He thought she had the right combination of strategist, operator, and cultural ambassador—as well as what he calls “an amazing engine.”

At her first market manager meeting, McKenna faced a “tidal wave” of feedback about everything that was wrong in the stores. “I went home that night and said to my husband, ‘I absolutely have no idea where to start here, and actually I don’t know if I can do it.’ ” (He told her to get over herself and “get on with it”—a phrase McKenna also employs with regularity.) McKenna started to fly around the country to meet with store managers, eventually visiting every state. She would sit in the front of the room and just hear them out. “People like to be listened to,” she says. “And you know what, they tell you what the problem is—and they usually tell you what the answer is.”

They told her was there was too much inventory. That associates weren’t motivated. That they lacked what McKenna calls TNTs—tiny noticeable things—like equipment to clean the floors: “I stood on a stage and said, ‘I’d like to announce we’re bringing back propane buffers.’ The place went nuts.” She relaxed the dress code and reinstituted Walmart Radio, relieving store employees of a heavy rotation of Celine Dion and Justin Bieber CDs.

Some of her initiatives, however, were not so tiny. Someone with McKenna’s finance background will often try to “save their way out of a problem,” says Foran. “It’s ‘How do I cut?’ as opposed to growing the top line.” Instead, McKenna and Foran spearheaded a more than $2 billion investment in increased wages, training, and technology for store employees so they could spend more time out on the floor with customers.

A good number of the tools McKenna employed to help turn around the U.S. business originated at Asda, which was once a hotbed of innovation for the company—if there is such a thing in the grocery industry. Take click-and-collect, the process of ordering online and picking up at the store. Now the bedrock of Walmart’s U.S. e‑commerce strategy, it started out in the U.K. “I wouldn’t underestimate the benefit we’ve had as a company from the ability to share best practices and talents,” she says. But McKenna knows that the center of gravity is shifting, and going forward she’ll be looking further east instead.

In fact, this spring she got on a plane and returned to Asda’s headquarters in Leeds to hold a town hall after employees learned that the company was being merged. Walmart, which expects a non-cash loss on the deal, would take a minority stake in the newly combined entity with J Sainsbury. It was hard emotionally for McKenna, who had learned everything she knows about retail from her time at Asda. But, she says, “that’s what it’s going to take.”

THAT KIND OF resolve came in handy on May 9, when Walmart announced its 77% stake in Indian e-commerce giant Flipkart. The stock tumbled 3% on the news that the company had sunk $16 billion into the deal—not that far off from a year’s worth of free cash flow. The move is expected to drag down earnings per share by 60¢ in its next fiscal year.

Dialing in for an analyst call that day, McKenna, CEO Doug McMillon, and CFO Brett Biggs received only one of the perfunctory “congrats” typical of the forum and instead faced a wave of skepticism.

How did Walmart plan to stem Flipkart’s operating losses? When would it break even? Why not deploy that capital in the U.S. rather than in India, a wild-card market—especially when Walmart’s international track record was not so hot?

Walmart CEO Doug McMillon, right, speaking next to Flipkart co-founder and CEO Binny Bansal at an event in Bangalore, on May 9, 2018.AFP/Getty Images
AFP/Getty Images

India’s retail market is on its way to $1 trillion, but e-commerce represents only 2% of the overall pie. “They overpaid, just as they overpaid for Jet,” says Scott Galloway, a professor of marketing at NYU Stern School of Business. “But if they can establish themselves as a leader in e-commerce in one of the fastest-growing markets in the world, it may be worth it.” Amazon had developed right under Walmart’s nose in the U.S., just as Alibaba did in China, where Walmart is now trying to play catch-up. The $16 billion may simply have been the price of admission to play in the globe’s second-most-populated country.

It’s also the cost of not having all the answers—something that Walmart has been increasingly willing to admit to as the digital and physical worlds collide. McKenna likes to give the career advice that the skills that got you to your current job are not necessarily the ones that will make you successful in your next role. She seems to realize the same is true of Walmart. The expertise the company built in big-box retailing may not be what it needs to battle Amazon and Alibaba in an omnichannel future. “We’re not at heart a tech company,” McKenna says. “There are other people who can be better at that than us.” Flipkart is one of them, and McKenna, who’s proved she’s willing to ask questions rather than dole out directives, plans to bring lessons learned from India to other markets—just as she brought best practices from the U.K. to the U.S.

As CFO of Asda, colleagues would rib McKenna for being risk averse. “I used to say it was in my job description,” she jokes. She’s had to learn to get more comfortable with it. “I think that’s an important shift in us as a business—and for individuals like me.” For McKenna and Walmart, the biggest risk may be not taking one at all.

A version of this article appears in the Oct. 1, 2018 issue of Fortune as part of the Most Powerful Women package with the headline “The World According To Walmart.”