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Yahoo Finance Presents: Kathryn McLay

In this article:
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Sam’s Club CEO Kathryn McLay sat down with Yahoo Finance’s Alexis Christoforous to discuss the growth of the company and how it’s innovated around the coronavirus pandemic, as well as how she sees retail reacting to the changes in policies around inflation and interest rates.

Video Transcript

[MUSIC PLAYING]

ALEXIS CHRISTOFOROUS: Welcome to "Yahoo Finance Presents." I'm Alexis Christoforous. And joining me today is Kathryn McLay. She is the CEO of Sam's Club, which we know is owned by Walmart. Kath, thanks so much for joining us. It's great to see you here.

KATHRYN MCLAY: Yeah, I'm excited to be here, Alexis.

ALEXIS CHRISTOFOROUS: I want to start by congratulating you on a stellar quarter. You had the fourth consecutive quarter of double-digit growth. E-commerce sales jumped 27%. Membership at an all-time high. And I know Walmart CEO Doug McMillon even said he hadn't seen growth like this in nearly two decades. So share with us what drove that growth.

KATHRYN MCLAY: Yeah, so thank you. And not to be too specific, but it was our sixth quarter of double-digit comp growth--

ALEXIS CHRISTOFOROUS: OK, I stand corrected.

KATHRYN MCLAY: --which we're really proud of. And you know what? I think we saw at the start of the pandemic members join us because they were looking for a place to be able to get inventory, and I think they really just enjoyed the experience. Over the last kind of six quarters, we've been really leaning into making sure that the experience in the club is really delightful and that we provide members with convenience, like Scan & Go and curbside. And our members are really responding to that.

ALEXIS CHRISTOFOROUS: I know on the earnings call, you said that members are getting into a, quote, "stickier, more loyal" relationship with Sam's Club, and I think you just ticked through some of the reasons why. But why do you think it is that you're seeing such a high membership renewal rate right now?

KATHRYN MCLAY: Yeah, I think it's getting the basics right. So we've got great prices. We've got great value, great quality items. So, I mean, that's the fundamentals you have to get right. We're refreshing the entire fleet of clubs. So by the end of this year, half of them will be repainted inside to look very clean and minimalistic.

And then we're focusing on convenience. So how do we make it super easy for members to be able to shop with us? I hear so much about Scan & Go. Our members love it. They love being in control of their own destiny when they're in the club. They can-- they can do the transaction and leave at the moment that they want to, and that really resonates with people.

And particularly during a pandemic when there's concern about kind of person-to-person interaction. So Scan & Go is really, really sticky. And then, you know, if they get a credit card with us, there's like a 5% kind of cash back, you know, if they're a plus member. There's all of these elements of the relationship that are just building on each other and making Sam's Club the destination that they want to-- where they want to shop.

ALEXIS CHRISTOFOROUS: And speaking to that technology, I know that Walmart's CEO, Doug McMillon, has called Sam's Club the innovation engine of the company. So talk to us about how you're using AI and learning machines-- Machine Learning to enhance not only the customer experience, but the employee experience, and how you balance out using technology and having human beings on the payroll.

KATHRYN MCLAY: Yeah. I mean, I think it's such a gift today within retail to be able to use things like AI and ML. And really, it's pervasive throughout everything that we do. Whether it's kind of helping an associate know what the next best task is, or whether it's helping us work out what is the item to suggest to a member that's going to make their lives easier, we use this kind of capability and these algorithms in the background.

But really, we want the interaction to be between a member and associate because that's where the magic happens. So what we're trying to do is make sure that it supports and augments the associate, rather than takes away from the associate. One of the things that I think is beautiful about Scan & Go, it has meant that we've been able to transition people from the front end into curbside. So those associates now, instead of sitting trapped behind a cash register, they're out picking items for members.

And so it's allowing us to lean into new capabilities without growing the cost of running the club. So I think you can use technology really cleverly to be able to support your business and continue to grow and make sure you keep really-- really disruptive prices for members.

ALEXIS CHRISTOFOROUS: Talk to us a little bit about how people's shopping habits have changed over the past year, year and a half. Because during the height of the pandemic, in the spring and summer of 2020, there was a lot of hoarding going on. We remember the days when we couldn't find any toilet paper in the aisles. How has that shopping changed over this period of time?

KATHRYN MCLAY: And I think there's two things, Alexis. There's what they buy and how they buy it. And so we've invested a lot over the last 18 months in making sure that we get right how they buy it. So we want to make sure that the club feels safe. And that's important. Members are looking to see, is this clean? Are they wiping down carts?

They want to have contactless payment. And they want to be able to use curbside or deliver it if that's what they're looking for. So there's the how, and then there's also the what. So we have seen-- you know, at the start of the pandemic, it was toilet paper. But I also talk about the fact that there was this era where it was all carbs and calories. People were just looking for comfort food.

And then as we've come back through into this spring and summer, we're seeing this real emergence of people looking for healthy food, making-- you know our meat counter, our produce, our seafood has done extraordinarily well. And so we're looking for-- at the moment, we're seeing a little bit some behaviors that are a little reminiscent of the state of COVID because of delta. So we're seeing a little bit of a reemergence of that carbs and calories, but also some indulgence, like snow crabs and high-end ice cream are things members are looking for.

And then they also want to get outside. And so how do we enable them to be able to do tailgating and really lean into summer activities? So the members-- the members are kind of driving the-- you know, the items that they love. And we want to make sure that we're just in front of them and always have the items that they're looking for.

ALEXIS CHRISTOFOROUS: With the emergence of the delta variant, have you seen a shift away from foot traffic and back to online?

KATHRYN MCLAY: If I go off Q2, we actually saw some growth in foot traffic into the club. But we're also seeing curbside is really a strong, stable, growing element of our business. And I think that's going to continue and endure. So I think, you know, if you can offer both, a good, clean, safe environment where people can enjoy and still enjoy the treasure hunt and the excitement of finding new items, at the same time the ability to be able to shop, you know, from the convenience of their home or their vehicle, I think that's the best of both worlds. And members are showing us that they want to play in both channels.

ALEXIS CHRISTOFOROUS: You talk about the need for the customer and I'd imagine the employee to feel safe at work. I know that Walmart and Sam's has joined a growing list of companies mandating the COVID vaccine for some workers. Can you just tell us, because things are so fluid, what the company policy is right now regarding vaccinations, and also mask wearing for both workers and for customers?

KATHRYN MCLAY: Yeah, so we have requested that all of our associates in the home office, the support office, be vaccinated. And we've also requested any associates who are traveling to be vaccinated. We've also-- we also have requested that all of our associates in the club wear masks. So that's the position that we have at the moment. And really what we're just trying to do is make sure that we continue to keep people safe and we look after each other as we move through this.

ALEXIS CHRISTOFOROUS: When it comes to vaccinations, are you-- are you mandating that front-line workers and those in the stores interacting with customers be vaccinated?

KATHRYN MCLAY: We haven't mandated front-line associates.

ALEXIS CHRISTOFOROUS: Are you strongly recommending it, or are you asking that those associates get tested regularly for COVID-19?

KATHRYN MCLAY: We have constantly encouraged it, and we've been really encouraged by the number of associates who have taken the opportunity. We have a pharmacist that is sitting in Sam's Club, so we're making it super easy. We've offered $150 bonus to our associates when they get vaccinated and demonstrate that they've been vaccinated. We give them three days' leave to ensure if there's any after effects from being vaccinated.

We're doing everything we can to encourage them to make sure that they get vaccinated to look after their health and the health of their co-workers and family.

ALEXIS CHRISTOFOROUS: Do you know how many of your employees overall-- and I mean those in headquarters and those on the floor of your warehouses-- are vaccinated right now?

KATHRYN MCLAY: We haven't been sharing that data.

ALEXIS CHRISTOFOROUS: OK. Delta Airlines, I'm sure you know, recently announced that unvaxed workers who are on the company's health insurance would have to pay a $200 monthly surcharge as part of sort of a wellness program. You can liken it to those who smoke may have to pay more if they're on the company's health insurance because they're seen as a slightly higher risk.

Do you think that that is a reasonable ask for a company to make of its employees? And is that something that you think may be on the table for Walmart/Sam's Club?

KATHRYN MCLAY: You know, Alexis, I think we're all looking for what is the best way to help ensure that the nation gets vaccinated. And as business leaders, we're constantly wrestling with, what is the right posture for our organization, and how do we do the right thing by our associates, by our members, and by the communities that we're in?

So I applaud them for trying this. And, you know, I think we all need to just be open minded as to what is going to work the best.

ALEXIS CHRISTOFOROUS: Do you find that the incentives, the-- the bonuses, and the extra time off have actually made a difference? Did you see more of your workers going out and getting the vaccine after you offered those incentives?

KATHRYN MCLAY: Yes, and we did it in two stages. The first bonus was $75, and then we increased it to $150. And at both of those points, we saw an inflection up of associates that wanted to take advantage of it.

ALEXIS CHRISTOFOROUS: I want to talk a little bit about the labor shortage that so many industries are going through right now, from restaurants to retail to tech to banking. I mean, you name it. It's been hard to find talent. What has it been like for you there at Sam's Club?

KATHRYN MCLAY: So, you know, Alexis, I think we're in the fortunate position that we are at full employment for our club associates. So, you know, there are nuances to that. Within a particular club, we may be down, you know, a number of tire and battery tech associates, but we're up on the merch floor. But overall, across the entire fleet, we're at full employment.

ALEXIS CHRISTOFOROUS: I want to get back to the experience for the shopper in the store. How have you been dealing with the supply chain disruptions that have upended so many different industries because of the pandemic? And talk to us a little bit about inflation, how that's impacted the business. And are you needing to pass along those higher costs to consumers?

KATHRYN MCLAY: Yeah, we have been working through supply chain challenges it feels like for the last 18 months. And it has certainly gotten better. Last year, during the thick of it, I would say it was more domestically. We're working with suppliers with their supply chain challenges. And it just really-- it was important for us to remain nimble and flexible and work collaboratively.

This year, we've probably seen a little bit more of that being from-- from overseas ports and having congestion through those, and we've had to work to pull forward inventory and to make sure that we are prioritizing the right freight to get here on time. In amongst all of that, you're right. There is inflation. What is really, really important for us is that the member value proposition remains intact. And that is disruptive prices.

So we're always thinking about that as we get these kind of inflationary pressures. And we try and work out, like, of those inflationary pressures, what can we absorb? What can we work with our supply base and see if we can mitigate? And then when do we need to pass it on? And so, you know, I think it's been-- you know, this year, we've really worked actively with our supply community and our merchants to make sure that it just didn't pass through to the member, but that we protected that disruptive price. Because that's really part of the special part of shopping at Sam's.

ALEXIS CHRISTOFOROUS: Do you feel confident that you have the inventory to meet what should be increased demand in the coming quarters with the holidays in there?

KATHRYN MCLAY: Yeah. Like I said before, in Q2, we had a 10% growth rate, and that was on the back of 18% last year, so 28% growth in two years. I don't know that I've heard of that in kind of retail history. So that's a lot of growth we're asking our suppliers to step up and lean into with us. And, you know, as we go into the back half, we're being just as-- you know, we're requiring them to step in and lean into that volume with us and support us.

ALEXIS CHRISTOFOROUS: So I know that Sam's, like many retailers, benefited from those stimulus checks that Americans got during the pandemic. And in the next few weeks, some of that support from the government is going to expire, the moratorium on rents, the extra supplemental unemployment insurance. Are you concerned at all what that's going to do for your shop, or is it going to squeeze their wallets and perhaps keep them away from the store a little bit or have them shopping in a different way?

KATHRYN MCLAY: I think when we look at who we attract into Sam's Club, we actually attract across the spectrum of incomes. So there will be a subset of society and of our members that are going to be squeezed. We want to make sure that we are helping them out by being the place where they can get great prices.

And you just-- you know, Alexis, we're constantly looking at the balance of it. What's the mix of that member set, and are we making sure that we are attracting all ends of the spectrum?

ALEXIS CHRISTOFOROUS: You know, the Fed has signaled that it may raise interest rates at least twice by the end of 2023. As CEO of Sam's Club, I'd imagine you keep your eye on what the Fed is doing. Is there a concern there that higher interest rates could also have a negative impact on consumer spending going forward?

KATHRYN MCLAY: We're always looking at, at an individual household, what's the impact on their household and the household budget, and how do we make sure that we enable them. And so, you know, I think that's-- that's part of the attraction of the warehouse club. I mean, our prices are really quite disruptive. And so you buy in bulk, but you get access to great prices.

So when you have inflationary pressures, when you've got interest rate pressures, when you have all of these macro environment issues, we want to be the place that they can trust, where they know that they're going to get a great deal. And that's how we break it down. What's the role we play in their lives in their household budgets, and let's play the part that they can trust because they know that we've got their back and they can come to us for great prices.

ALEXIS CHRISTOFOROUS: Now, you became CEO of Sam's four months before the pandemic hit. And there was no playbook on how to lead through a pandemic in recent times. How did you do it? And when you look back-- and we're still in it, to an extent-- but when you look back, is there anything you wish you might have done differently?

KATHRYN MCLAY: I think-- I think-- you know, I was talking to Doug about this the other day. There was actually something very liberating about not having a playbook because we just had to pull together as a leadership team and work it out. So my leadership team and I met every day for the first three months for an hour and a half, seven days a week. No PowerPoint presentations, no-- like, just in the room, subject matter experts. How do we lead through this?

And I have to tell you, Alexis, I'm super proud of my leadership team. They did a wonderful job. And, you know, it forged a trust and it forged alignment like I've seen in no other leadership team before. And so, you know, I think that's been part of the strength of how we've navigated through this.

I think we also saw a moment to ask our associates to step up and to stand for something different. During the pandemic, it was rugged on the entire society. And so we asked our associates to focus on kindness and empathy during that period so that when people did come to Sam's Club, we ensured that they had a great experience.

And I would have to say, you know, our associates have just done an amazing job in that environment to make sure that they did stand for kindness and empathy and that we were a place that people, you know, went to and knew that they felt valued while they were there.

ALEXIS CHRISTOFOROUS: And finally, Kath, we have a record 41 women now heading Fortune 500 companies as CEOs. And while that is progress, it is still about 8% of all Fortune 500 companies. What would you tell women watching this interview and looking for a seat at the table?

KATHRYN MCLAY: You know, Alexis, I grew up in a family where my father and my mother taught us that we could be anything that we wanted to be. And I-- I fundamentally believed that all through my life. And so there were no limitations or restrictions on what I could or couldn't do.

And I would say to women, go into the world with that same premise. It's really up to you how much hard work you put in and sometimes the lack of the opportunities that come your way. So, you know, I guess my counsel would be to women, don't put limits and boundaries on yourself. Just be the best version that you can every single day. And, you know-- and, you know, hopefully that will work out well for you.

ALEXIS CHRISTOFOROUS: Sound advice no matter what gender you are. Kathryn McLay, CEO of Sam's Club, it was a pleasure. Thanks so much for being with us.

KATHRYN MCLAY: Thank you, Alexis.