Walker & Dunlop, Inc. (WD) Earnings Call Transcript & Summary

Good afternoon, and welcome to today's Walker Webcast. I'm Susan Weber. And joining Walker & Dunlop's CEO, Willy Walker, on today's webcast is John Furner, President and CEO of Walmart U.S. They will discuss the future of retail, brick-and-mortar, shopping versus online shopping and consumer trends. Before I turn it over to Willy, I'd like to remind our listeners that past episodes are now available on our podcast, just search driven by insight, whenever you listen to podcast. Thank you for joining us today, and now over to Willy.

Thank you, Susan, and good afternoon, everyone, and welcome to another Walker webcast. I had a terrific discussion with Stephanie Linnartz of Marriott on the last Walker webcast discussing the hospitality industry and how it will recover in 2021 and beyond, and I'm really excited and honored to have my friend John Furner, President and CEO of Walmart U.S. joining me today to discuss the retail industry. Next week, we will have Wharton Professor Mauro Guillén on to discuss his best-selling book, 2030, how today's biggest trends will collide and reshape everything. I've read 2030 and would strongly suggest anyone listening today to pick up a copy and join us next week. The book is packed with data and insight that truly can't be ignored. And then the following week, we'll have Michael Bush, CEO of Great Place to work and McKinsey Chairman, Gary Pinkus join us to talk about what makes great companies great. So it's quite a lineup over the next 3 Walker webcasts, and I hope everyone can join us again. A couple of quick anecdotes from me before I turn my questions to John. I did an interview on Yahoo! TV last week, where I said, I think people will get back to business travel much quicker than many expect. That statement was picked up by several media outlets and one article compared my comments about a quick snapback to Bill Gates' comments that 50% of business travel will disappear forever due to the pandemic. First, I've never had anything I've said compared to something that Bill Gates said, so that was both an honor and kind of fun. But whether Gates is correct or I'm correct, I'll give a couple of quick thoughts about why I have a strong conviction about a fast rebound. We held Walker & Dunlop's first client event since the onset of the pandemic week before last. Everyone who came to [ ski ] got a COVID PCR test prior to arriving. We took over a lodge, so it was just our group. And not only did everyone come and go without any health issues, but the event was likely one of the most impactful client events we have ever had due to everyone being locked down for almost a year. Now every competitor of Walker & Dunlop, who just heard me say that, is saying to himself or herself, we got to get going. That's the competitive landscape shifting. And as the vaccine gets more widely distributed, and we get back to life closer to normal, travel will snap back. I also traveled to Miami last weekend. Our hotel was packed. The pool was packed. The beach was packed. And mask wearing was, let's just say, [ sprag, ] but people are desperate to get back out there. And finally, on my way back to Denver, I had a meeting with 4 of my colleagues from Walker & Dunlop while I was in Florida. We have not seen one another since February 4 last year. And while we have zoomed with one another, almost every workday over the past year, just sitting around the table and truly laughing, breaking bread together and looking one another in the eye, it's simply irreplaceable with regard to human interaction, friendships and culture. So I'm more convinced than ever that travel, both leisure as well as business will snap back quickly as soon as we have either achieved or think we've achieved herd immunity. So with that, let me turn to my guest, John. John Furner is President and Chief Executive Officer of Walmart U.S., where he is responsible for the strategic direction and performance of more than 4,700 stores and more than 1 million associates. From 2017 to 2019, John served as President and Chief Executive Officer of Sam's Club. John started with Walmart as an hourly associate in 1993 at Store 100 in Bentonville, Arkansas. He has held important roles throughout the company from Store Manager to Head of Marketing and Merchandising for Walmart China in Shenzhen, China. So John, first of all, thank you so much for joining me today. And there's this amazing stat I read that 85% of senior management at Walmart started their careers inside a Walmart store. What advantage do you think that pedigree and on-the-job training brings to Walmart?

Willy, well, thanks for having me. I'm sure there are many advantages, and I'll try to talk about a few of them because I am one of those people. I started at a Walmart store. In fact, I was in the same store I stored at this morning with a few associates, and it's just across the street from our home office. We refer to it as Store 100. We number all of our stores, and we love our acronyms and numbers, and I started working here in college. I -- to be completely open, I aspired to be a rock musician, that was going really absolutely nowhere. And like many things in life, things like needing to stay on a budget and have a paycheck stepped in as I was studying marketing at the University of Arkansas. And so I went in and started at the store here locally, thinking, I'd stay for a summer or maybe for a year. And fell in love with retail. Retail at that time and through the years and now in the future changes so quickly that you can do about anything here. So for our team through just an amazing group of people, a very large number of our managers did start in stores. This company provides amazing opportunities for people all over the country and all over the world, and I'm just really fortunate to be a part of it and to be one of those people who started at the bottom and fortunate to be where I am today.

Do you started actually before you, if you will, using your words, starting at the bottom, you actually became part of the Walmart world when you were 3 years old. I very rarely have a guest on the webcast who's been involved with the company for as long as I've been involved with Walker & Dunlop because it was a family company. But your dad worked at Walmart, and you've watched the company grow. And you've watched it grow from even when your dad joined it, it was still a very significant company, but it's just the last 40 years has been an incredible one. What's the biggest difference other than just the sheer scale of Walmart when you can first remember being sort of part of it to where it is today?

Well, you're reminding me -- in fact, a few [indiscernible] just had this conversation the other day. I wonder how we get credit for all the years of service that we have been a part of it. My first memories were when it was about 3 years old. So I learned a lot about the foundation of [ Technical Difficulty ] operated as business [ Technical Difficulty ] the kid. And I learned it at home. I didn't learn it in a store or in a car, I learned it at home. And the things I learned at home were the things like respecting individuals, taking care of the team that are doing all the real work on the frontline, having this obsession with serving customers and trying to figure out where customers are going and operating with integrity. There's just core values that I heard about for years, for 15 years before I went to work for the company. And those things haven't changed. We wake up every day, and we know we're here to serve others. We're here to serve our customers. We're here to serve our associates, and we want to do it with respect, and we want to operate with integrity. I think what's really changed, though, is just commerce in general. And I don't think it will stop changing. I think that once you found what it is, a customer enjoys from your services or what's working, it's great until they find something better. Sometimes kid with or joke with my team that loyalty and retail is the [ time to the absence of ] something better. But I think that's true. It's not to say that we're paranoid, but it's good to have a level of a healthy paranoia just to consider that customers are finding new ways to be served all the time. And the technology that we have available at our fingertips and the way we use algorithm, the data, it's really changing the way that we can be more predictive, so that customers can spend less time on the things in their life that they cause friction in their life, and they want time to spend on things they enjoy doing the most. And if we can help give them some time back and fill their needs then that's what we're going to continue to try to do.

So I want to spend a bunch of time during our time together talking about exactly all those things that you're talking about, how a customer has changed and what you're doing to change the way Walmart's meeting their needs. But before we jump to that, I want to spend a little bit more time on the culture that you just talked about. I mean, Walmart is now the largest employer in the world. And yet, the legacy of Sam Walton still goods on. I get asked a lot about Walker & Dunlop and the unique culture of Walker & Dunlop. And what happens when we grow from being 1,000 employees to 5,000 employees. And I kind of laugh at thinking about the fact that you have over 2 million employees at Walmart, yet you have been able to maintain that culture that Sam Walton embedded in the company so many years ago. What is it? I mean I'm assuming if I walked around Bentonville and your headquarters that there are plenty of images of Sam Walton and the roots of the company, but you've got to kind of eat, sleep and breathe that every day and make sure that the 2.2 million associates that are inside of Walmart worldwide understand exactly what that is. That just seems like a monumental task.

Well, it's not something that [ Technical Difficulty ] able to do. It's a collection of -- it's a lot of people who [ Technical Difficulty ] the basic value, the most important thing that we think about. And I remember early in my career, I was working in a store in North Carolina and the first time I got to go to what we call this year beginning meeting where all the managers come together one place, and we talk about the year before, we talk [ Technical Difficulty ].

I think John is frozen. John, can you hear me? I think we have a bad connection down the Bentonville. Yes. He's falling away for a moment. To those on the line, if you hang with us for a second, I'm assuming that John will come back in. I was hearing his connection be a little weak. Here he comes back in. So let's hope that as he comes back in, we get a better...

Willy, are you there?

I am here.

Okay. So I got dropped. They're going to try to hook on to a second location here. So if that happens again, I'm going to switch screens real quick.

Okay. So you -- we lost you right when you were talking about the team meeting and reflecting on the previous year.

Yes. In these meetings, there are thousands of people in one location, really exciting, and I remember David Glass saying if someone had asked him at that time how do you manage and how do you lead a $100 billion company and David's answer was, well, I have absolutely no idea how to do that. What I do is I try to run one store at a time. And it was helpful because it's all about one person at a time, one patient at a time, which is a lot different than trying to in your head just think about how do you manage a workforce that's 1.5 million people. And the answer is we don't. We break it into parts, and we have people who are managing store at a time, a market at a time, a region at a time. So we really break this down into a very, very confident team -- the parts of the very common team who are able to help us do this and do it together. But ultimately, and as you're thinking about how you scale [ Technical Difficulty ] scales, and to make it clearly aligned on the core principles and the things that are not going to change. And I think of those is like gravity. Those basic believes they're gravitating, they always pull back and when we try to get away from them, the forces [indiscernible] strong and we better respect it.

So I believe you use a technique called a huddle, where you have a daily huddle with your team and then your teams go and huddle with other people. Talk for a moment about the huddle and how you use it every day to guide your absolutely massive business.

Yes. We do -- the teams and fulfillment centers and distribution centers and stores, they do take a couple of minutes every day, and they start the day with a bit of a review of what we've done and where we are and then what's ahead of us. I was just in a distribution center in Texas a couple of weeks -- a couple of months ago, and I was watching as this team comes together, it was the beginning of the shift. And even in these environments, there are physical environments, there are people that are working in freezers all day, refrigeration units all day and they're physical. So their huddle was here's how we did the day before, here's [indiscernible] the week, [ here's what the source. ] And then it was on to like physical training, like you and I [indiscernible] through cycling in this past -- this hobby that we both have. But in a row like out there, they're doing jumping jacks, stretching, get ready for the shift and they're all [ added ] as a team. So I have my own version of the huddle, I do every couple of weeks, and we just put that out in the public for people to see. But it's important for any leader to make sure the team know who you are and not just what you expect or what kind of goals you have in the business, but they want to know you. They want to know who you are and what makes you take and -- did you get up out of bed the view every day. And if you don't help them learn a bit about who you are and what's important then someone else can do that for you. So for me, it's just important that they know who we are and that we're a part of the team and what it is we want to do together.

So your business, Walmart U.S., did $341 billion in sales in 2020. That's out of a total of $524 billion total for Walmart and generated $17 billion of operating income. First of all, those numbers are just hard to get your head around. But what's the biggest challenge? I mean, I looked at comparables. Like -- I mean, you're doing 3x the sales of JPMorgan, right? So I was trying to figure out about like the size of your job versus Jamie Dimon's job. And you got a much bigger job than Jamie Dimon does. What's the biggest challenge in managing $1 billion in revenues each and every day?

Well, it's funny you say that. When I first moved into the role in November of 2019, I remember looking at a couple of sales reports, and I kept having to go back to the fact that I have been a part of the Sam's Club team, and we were at a time doing about $1 billion a week. And I remember checking it 2 or 3 times because I kept thinking [indiscernible] for yesterday that can't be right because we -- I was -- just came out over $1 billion week and a $1 billion week seem pretty big. It's a large-scale operation. It's -- look, it's really hard to get your head around trying to quantify what it is. And so what I try to focus on is not the size of it, but the quality of decisions. And what I really try to do really spend a lot of time thinking about and listening to whether it's through informal channels or some sort of formalized -- being that channel is what's going on with the customer. And if we can improve the customer experience individually or at scale, then the 340 could be much bigger. If we don't innovate, we don't sell the customer, the 340 is -- it's not -- we're not entitled to it, it could be something much smaller. So I'm constantly worried about what are we doing for customers and for associates. And the scale, I just -- I obviously, I really don't spend a lot of time thinking about. We quantify it at the end of the quarter, and we quantify it at the end of the year. But if you try to break down $1 billion a day, I think you'd spend all day trying to get from the $1 billion to something else, and we wouldn't have much time for the other things that are so important.

So I don't want to spend too much time on size and scale and how big this all is. But what's the -- in the U.S., what's the largest Walmart in the sense of which store does the most revenues on a daily basis? And is that due to the footprint? It has more products? It has the best food? Or is there something else that makes that Walmart the biggest from a sales standpoint? And I see you stepping up, so it tells me that you're going to go to another computer. So if anybody who's watching the screen I'm going to do a plug for Walmart because it says save money and live better. And clearly, that is part of -- he will be right back. I'm getting a note. So to those of you listening in, please hang on for a moment, and we'll pick the conversation up as soon as he's back on. One of the nice parts about this virtual world that we all live in is that it doesn't cost a whole lot to get a Zoom link. And when one goes down, you can get another one back up and going pretty quickly. So let's hope we can do that. Well, I'm waiting for John to come back on. Just a couple of broad thoughts that I actually hadn't planned on going into today on the commercial real estate world, but I will do so. Many people have seen that the 10-year has rallied back down to close to 1%. I think a lot of people had thought that we cleared one and we're headed towards 110, 115 and potentially higher. Clearly, people investing back into fixed income as there is somewhat of a sell off going on in the equity markets. I don't think that's as much of a statement about the fixed income markets and people saying, I got to go buy 10-year treasuries as it is about the sell-off in the equity markets right now. A lot of commentators on squat box talking about the fact that markets typically after the inauguration of the new President have a pretty choppy first month or so. So we'll see how all that plays out. Since the last time we all spoke, we obviously have a new President sworn in, and the Biden team is wasting no time trying to both get the pandemic under control. I was on a real estate roundtable quarterly meeting last night listening to Senator Wyden, who's now the Head of the Financial Services Committee and the Senate as well as Sherrod Brown, who's now running the banking committee as well as Senator Manchin, who has become a very important swing boat in the U.S. Senate, talking about what's going to happen in the Senate, what's going to happen with COVID relief and taxes. I would say one thing that was [indiscernible] of the real estate roundtable said that had we all been in a room, Senator Manchin would have gotten a standing ovation when he basically said it will take the Obama administration as well as the U.S. Senate quite some time to start focusing on any changes to the tax code, given everything they're focusing on right now as it relates to COVID relief. So I think that many people on the call from the real estate roundtable were concerned that we would see significant changes to either the 1031 exchange rule or carried interest. And whether that comes or not, is still a question mark, but Senator Manchin was trying to put people at somewhat of ease that it's not something that's going to be imminent. With that, John is back, there you are.

Sorry, one thing we will be tenacious.

A much better connection. So what I was asking you was the largest store in the country, and is that due to just having a huge footprint, more products, best food or some other special sauce?

We don't disclose a location volume, per se, but our best stores typically -- it's a combination of things. It always starts with the right product that people are looking for at the local level. But store managers make a massive difference in the way stores run like any business that has multiple operating units. Now that individual has such an impact over the way that processes handle, the way to connect with the community. But our best stores, we find -- what I typically find are the leadership teams are so well aligned. Right, we can walk into facilities. You and I could go in a couple together and we could quickly huddle, as we said earlier, we could huddle with the leadership team. And within a couple of minutes, we'll have a really good indication on how well the store is going to be presented and the types of revenues and profits they generate. And it's alignment around some very narrow things. It's inventory availability, the [ RET ] pricing, having people who are friendly. And a large part of our commerce, which I know we're going to get to, Willy, but it's changed in the last few years. And last year really accelerated some of the trends we were seeing in terms of shopping and picking up, shopping in store, e-commerce and the entire U.S. market, but there's some pretty big shifts early in the year. But it all comes down to the quality of individuals, the roles they've had that prepared them for the leadership role that they're in. And then having the right career ladder where people can start as a store manager or a buyer or a merchant here in the home office or a logistician or start in the store working in the garden center the way I did and have a career ladder they can follow to be as anything they want to be in the company.

So let's jump right to that, John. As it relates to 2020 and the kind of the accelerated changes to your business that you saw happen. Pandemic hits, everybody in commerce and business appearance says, we don't know what the future holds. But many of us, like Walker & Dunlop, we were able to basically send everyone home, do remote work and continue to process our business. You had the very real challenge of making sure that your associates were able to go supply services, deliver services and keep going. Talk us through for a moment what the real challenges were there. And then whether any of those challenges that you overcame are going to be lasting changes to the way that you are managing Walmart?

Well, that's a great question. I heard you talking about travel earlier. And I think the answer is we can assume some things, but we really don't know exactly the way or the timing that things could become. I hear people say all the time, get back to normal. But what may be normal in the future might be different than what we would have thought is normal before 2020. And early in the year last year, I didn't anticipate being a part of an organization that had 1 million essential workers and hadn't really spent much time thinking about the role of what an essential worker was and their terms that popped up early in the year like essential worker and social distancing, other things that when the last time you and I physically saw each other, which is probably 18 months ago, if you would had said any of those things to me, I would say, well, I don't know what you're talking about. We don't think of ourselves that way. And as things begin to progress, you could see that something was coming, and you could see that this may change the way we have to operate. And it was really about early March and in 2020 when things really started to accelerate. And the day that I remember the biggest change, I think it was the night that the NBA canceled the rest of its season, and that began what we refer to as the stock up phase back on our first quarter last year, and we saw, as you did and everyone in the country, runs on product categories, something like anything that I think any of us had ever seen before. And our team was put in the position of trying to maintain supply and a supply chain that had run really well, and it's a big, stable supply chain. And suddenly, there is these extreme demands, but all the way back to product manufacturing and logistics and getting products through warehouses and back in stores. Our e-commerce fulfillment centers, we're seeing spikes in demand that they haven't seen before. So trying to frame up what we need to do as a business. And at that point, it was all about we've got to do everything we can to serve because people need us. And we began purchasing surgical mask to give our associates to wear, we put in something like 80,000 to 100,000 plexiglass shields between our cashiers and the public, and we covered our pharmacies, and we began social distance measures in stores, and we started providing wipes and sanitizers at the front of store. We limited our hours. We were 24 hours in a lot of -- many locations. We went from 7 to 8:30. So there were just so many decisions happening at the same time. But the biggest single priority was being able to serve and protecting our associates the best way we could. So we had to change our lead policy immediately for the people that thought they had been exposed, would have time off. And I'm sure someday I'll have a chance to sit down and rethink through all the things that happened. But in those situations, it's really about -- you just got to put yourself aside and think about what's best for the person who is on the front line. Part of our workforce is remote. If you were here in the home office with me today, you'd see me and a few other people. And it's pretty thin. We learned some things about remote working in administration, but there are a number of us who are probably 50-50 between being in the field still and being in some sort of remote situation, and then we've got a big piece of the workforce that they are the front line. And my hats off to them. They kept a big part of the country fed and running at a time when there was so much change. And for those that are listening in manufacturing though it's not as easy. It's just taking a foodservice product and putting a barcode on and changing it to a new size and suddenly you're ready for sales to be happening in the grocery store channel. Those are some pretty massive shifts, they take a while. And so how quick it changes back, I don't know. I'm sure that we'll find a new normal. I'm sure people will travel again. I'm sure when we get to get to a high level vaccinations or herd immunity, people will get back out. I know there's pent-up demand to get out. And the other question is, what does it all mean when this gets back to -- or gets 2 way state of what we'll call normal in the future.

Just when you were talking about supply shortages, managing, everyone remembers toilet paper was the product in demand, you all have made a science of supply chain and logistics. Yet you didn't build it as you said, if we talked about a pandemic and the stresses it put on you 1.5 years ago, we would have never been able to think about all the pressures it put on you. Was there anything during that crisis that stress that supply chain that made you think about potentially changing something going forward, whether it was your suppliers. I know you all are famous for having your suppliers be co-located in Bentonville with you all. Anything where -- you know what, that supplier didn't show up. We got to vertically integrate back into that product or we can white label that product or shipping, I mean, I think you own all of your own logistics management as it relates to shipping products from here to there. But was there anything there? You -- obviously, you're not going to say to you, we're going to -- we decided to take on P&G and they're no longer our partner, that's not what I'm looking for. But was there anything during that process, John, that stressed the system to the point where you think you're going to change the way that you logistically manage Walmart?

Well, one thing that happened early that I think this will sound obvious, but it wasn't an obvious -- as obvious as it likely is now is visually people react to what they see or they don't see even more than probably what I believe going into 2020. And what I mean by that is the category that sold out the first and was stacked up the quickest was bath tissue. And I remember a friend called acquaintance from China and said, I've got a question and with this pandemic, why are Americans buying all the toilet paper? Why aren't they worried about food and water and other things, they need to stay home, which is actually a great question. Certainly, it is something that we have and we consume, but it's not essential for staying alive. But I think the answer is when someone sees something empty it creates a sense panic and because that's a big product, it's bulky. A big package takes up a lot of space. It's one of the places in the stores. And in [indiscernible], where you dedicate a lot of space to it because it just -- a counter doesn't hold that many units. And so nationally, when these things start disappearing, I think people feel like, well, it's about to run now I better go and get it. And I don't know if it's true now, but at some point last summer, someone told me there was something like 40 weeks of toilet paper in American's homes sitting stockpiled. Hopefully, that's all reconciled now. But what we've learned from it is really to let the math help us dictate the way we manage things, what we call safety stocks or backup stocks or supplies that are coming through. The company has been historically great at managing inventory turns. And as you know, think about selling inventory as you receive it and almost adjusted on system. So over the last year, many of our supplier partners and us together have ensured that things that we would call modulars or shelf space represent more space, the very best-selling items. There's definitely been some rationalization around the entire industry. Maybe the best way to describe it is the 10th or 12th flavor of something, we've decided to not stock, and we put more space and resources into the top items. And where it all ends to be determined. The big thing, too, that everybody knows about, of course, is the channel shift. Store business through the end of the year or through the end of our third quarter as we reported remained strong. The e-commerce businesses are growing faster, and then our pickup and delivery business shifted really early in the year. It was under extreme stress in March and April last year. And then a number of millions of consumers were then shifting to home delivery and pickup as the year went on. And if I were to guess, it's probably, probably accelerated the whole country. This is a national segment. I think the pickup and delivery business probably accelerate 2 to 3 years ahead of what it would have because of the changes that were in place last spring.

So talk for a moment about the competitive landscape. I want to go to online the multichannel piece of it in 2 seconds. But just talk about the competitive landscape as the pandemic set in because the big-box retailers clearly were net beneficiaries. And the smaller retailers suffered greatly. And we clearly -- there's been a lot of talk about small businesses in America. That's really where the stimulus money needs to be targeted and there are plenty of small retailers who really suffered through this crisis. Clearly, not looking for you to say, hey, that's been great for Walmart because I know you wouldn't say that, but it has been just from an economic flow standpoint, the big-box retailers have become the net beneficiaries of the scale that you all have being on the front line and being able to stay open during the pandemic, but you go head-to-head with Target. You go to head-to-head with Costco. You go head-to-head with Amazon. Just talk about how that landscape is shifted this year? And whether you feel that Walmart, given the number of stores you have and how strong a retail base you have, how do you continue to compete with such fierce competitive set and the Targets and the Costcos and the Amazons of this world?

Yes. It starts with the customer, and I'm going to repeat something I said earlier, knowing what is important for our core customer and other customers who are potential customers, we really, as I said, are really focused on what is the customer wanting from retail in general. Right now, in the past, going forward. And the winner in any of these markets are going to be the people who always serve the customers better than their competitors. Back to your point on small business, we are looking forward to our small businesses being more healthy than they are today. Small business is a very large part of the economy. It's where entrepreneur start. And Walmart is a small business. It scaled over the years. You mentioned, Sam Walton earlier, he started with a single location here in Arkansas, and that's a very small business. So we want our -- we want the stimulus that we assume is going to happen to make its way into the hands of small business and it's great for employment. But just to wrap it up with competitors, though, competitors are big, they're small and they're everything in the middle. And it's all about share. And when you're gaining share, you feel good about the results. And when someone is taking the share from you, then clearly, we've got our work to do our homework to go do, but we spend a lot of time thinking about customers. And look, what we know about customers is they want to be able to shop conveniently when they decide to. When they want something for pickup, we've got to be there to be able to do it. And when they want something delivered, we also needed to do that. And I think the future looks more like customers want to be in stock at home the same way we want to be in stock at a store. So customer journeys include inspiration and discovery. And they also just include I have a favorite soft drink, and I want that to be in my refrigerator any time I go there, and we want to be able to help fill that role for them.

So I believe in 2019, about 8% of your sales were online. You haven't released your 2020 numbers yet, so I'm not going to ask you for that, but it's my assumption, it went up quite a bit. Where is e-commerce as a percentage of Walmart sales in 2025 or 2030?

Well, we haven't issued any guidance for this year coming up, and we started -- it's pretty interesting situation back in the first quarter last year. We decided not to provide guidance for the rest of the year and going forward at that time because there were just so much changing. And as you said, e-commerce is certainly growing faster than brick-and-mortar, which include the pickup business and the direct-to-home business and into the end of the third quarter last year, you have seen our results where e-commerce is quite strong. So over the long run, look, I don't want to try to be an economist, I'm not an economist, I'm a marketer who leads a retail company. Do we think it will be shifts, certainly at the rate that will happen, I'm not sure what it is. But what I try to think about for our team is be prepared for any change in the environment. And like I said, last year, there were changes that I certainly never would have anticipated. I don't think any of us would and I'm extremely grateful for the team here at Walmart, who were able to adapt so quickly. And we had our stresses put on us early in the year last year with the out of stocks and imbalances in supply chain due to the changes we saw so quickly, but this team has reacted. And just as I said this morning, I was in a store across the street, the in-stock of -- the in-stock is in great shape. The produce quality looks great this morning. Team's engaged. So it's just a matter of deciding that whatever comes at us, we've got to be ready for it. So from now until we've got to be ready for the changes that the customers want to make.

I'd asked you previously about logistics and supply chain and what might have changed during the pandemic. I believe that during the pandemic, you also brought your 2 merchandising teams, both online as well as traditional retail together. And then you also -- you collapsed the online app for [indiscernible] with the retail app into 1 app. Talk about that because the size and scale of Walmart is something that few of us have any real appreciation for, but one thing I think everyone understands is changing a company as large as Walmart is not easy. And I read that and I sort of said, well, there's probably a benefit to someone like John who might have wanted to bring those 2 together previously, and the pandemic sort of forced it. And now you have those 2 retail teams working together, you have that app being unified app. Can you talk about that and whether that was net beneficial and something that you kind of -- from a strategic planning standpoint, a couple of years ago, said, God, I'd love to do that someday, but it's just not going to do something I can actually get through?

Yes. Yes. No, happy to talk about that. Those changes were made probably between March, April last year, when the 2 apps moved to 1 app. And we have 1 app now but it still has 2 -- what we call 2 hallways inside it. So we've still got some work to do to make the app experience even more seamless. And then the 2 merchandise and operations teams were built separately. So the store business had built its way up from the early '60s until last year in Bentonville and then our e-commerce scenes were geographically dispersed between New Jersey where Jet.com was located. And then California where Walmart.com was located. And then a number of acquisitions we've made. And both are big businesses and both growing. And what was trying to do is make it -- so that when a customer shops with us, they could shop with us as the brand Walmart, be able to search what it is they were looking for, transact seamlessly and not exposed to the customer our org chart. And if I were to diagram the org chart and then you went on some shopping journeys, you say, "Oh, okay, I get it. I'm now with the store org chart, I'm with the e-comm org chart. Or in this situation, I'm now -- I moved over to the financial services org chart. And again, it's putting the customer in the center and then making the experiences around the customer a seamless experience and able to fulfill all their needs. And what we were doing in some situations, as you could tell, which business you'd moved over to, almost like swiping an app on your phone and going off to shop somewhere else. So those experiences are what we were trying to clean up. And I'm sure you and other business leaders have the same thing where if you're in one part of the business, and if it's in banking, if you're with retail banking or mortgages or an investment, it's like this relationship starts all over and hello, Mr. Walker, nice to meet you. Well, you should already know me because I do business with you in 2 other places. But we're trying to make sure that the customer doesn't recognize that our org chart is fragmented. And look, we've got a lot of work to do and a long way to go but I think the team is well positioned to be able to do it.

While you were doing all that, you delayed the rollout of Walmart Plus. When can we expect to see Walmart Plus? And is it going to be Amazon Prime on steroids? Is it going to be Amazon Prime? Or is it going to be something completely different?

Well, now that you said that, I feel like we should have -- since you something and been a little louder in your market because we did get it launched in the...

I'll sign up today, John. My bad. I will be a Walmart Plus customer by the end of the day. I think you might -- I'll send you my password.

Okay. So I believe you will. But we're excited about the program. It's early stages. And [ Technical Difficulty ] we got out we launched with unlimited shipping on orders from your local store for foods and our merchandise and other items, we have a product called Scan & Go where when you're in the store shopping, you can check on your mobile phone as you're going to the store. You've got a fuel discount that's available at Walmart [ Murphy ] locations, including Sam's Club around the country. And then in December, we added a free shipping benefit from walmart.com. So Willy, if you would [ Technical Difficulty ] and go in and just load your basket, we will get it to you, and I think you'll be pleased. But we're excited about the program.

So one of the stats, John, that I think a lot of people are surprised at was that in Q2 of last year, right, in the depths of the pandemic, 84% of retail sales in America were done through bricks-and-mortar and only 16% online. And that then collapsed back down to 14.5% online and 85.5% through bricks-and-mortar in Q3. And so while everyone sits there and gets sort of thinking that Amazon is out to take over the world, the reality of the situation is that the vast majority of retail sales still go through bricks and mortar, and you're the largest bricks-and-mortar retailer in the world. So I guess one [ quickie ] question would be why are they are trading at 97x earnings and you're trading at 21. But more importantly, isn't that installed base that you have in your 4,300 stores, a real competitive advantage to you as it relates to last mile?

I think being local is an advantage, and we're proud of the fact that we're local and close to 5,000 communities. And I would include being local, I would include in that, our distribution centers, fulfillment centers, apparel, sortation centers, we're local all over the country. And just this week -- last week, a member of my team said, "Hey, I just want to share the experience I had. She said I decided I needed to buy K-cups, and I ordered them on walmart.com, and I thought they'll be here in a couple of days. That sounds great. And about 3 hours later, they showed up in my front door, and I was so pleased to find how quick it was and delighted to see the speed. " And to your point, having capabilities like that, where we can do express deliveries in under 2 hours from literally thousands of places is an advantage. And what we see now, and I think we'll see even more in the future as the consumer that has the capability to be fulfilled on demand in just about any way they want. And having the stores and associates and fulfillment centers located all around the country. It's exciting to think about the possibilities that can be accomplished by such a footprint and having the ability to have a digital relationship with customers and help you anticipate things that you may be out of stock of in the future at your home or share with you the latest releases on things that may be interesting and help you discover. I'm excited about the possibilities. And one of the things you would see, you mentioned there are probably pictures of Sam Walton around your office. And there are -- and one of those talks about the only content Walmart is changed. And I don't know, Wendy said it, but it was probably in the '80s, and that was when -- and I remember when the company had its first billion-dollar year. And then when I joined the company, I think we were maybe $55 billion, $56 billion. I remember we hit a 100. And we say to our associates and they repay back. The only thing -- the only constant at Walmart is, and they'll say, change. So we are going to change and we'll keep changing. But you can change and you can grow business and change without losing what got you here. And what got you here, it's typically the values and personality and the things that the founder and sales and leads with us. That's what got you here.

When I look at your CapEx spending in last year's annual report, I was surprised at the, if you will, the disparity [ installment ] spending between e-commerce, technology and supply chain, where you spend $5.6 billion. And that's over 2x, what you spend on remodeling existing stores. And then dramatically larger than your new store acquisition, which for 2020, and it was obviously an anomaly a year, was only $77 million. But the year before that, it was $313 million. But there are a lot of people listening today who are very interested because there are a lot of people in the commercial real estate industry listening. As it relates to sort of do you continue -- I read those numbers, and I say, Walmart's putting all their money into e-commerce and all in to supply chain and technology and not a whole lot into growing the bricks-and-mortar footprint. Is that fair? And are you basically sitting there and saying, let's hold on to this physical footprint, but then we really -- the challenge is to grow the e-commerce business.

Well, I think -- well, it's probably a combination of a few things you said. First, we're in 4,700 locations, and we're pleased with the footprint that we have. And it's a large number of locations. We had grown fast in terms of square footage growth in supercenters for probably 15 years. There was a really strong run. I think in the '90s and 2000s, late 2000s, we probably peaked at about 300 locations, maybe a touch more per year in terms of growth. And the technology investments are really important for us going forward. We have got a number of systems and applications that we're updating. We want to be a digital company. We've built in things like product management, it's a discipline to ensure that the tech products we deliver and build are commercial-grade for not only consumers, but our own associates. So there's a large-scale transformation in technology that's been going on and has been ongoing for some time. And for me personally, I learned a lot from the years that [ Technical Difficulty ] when I was at Sam's Club, finding ways to create innovation in spaces that failed out for us, thinking like a digital enterprise and building in the capabilities to delight customers preemptively, like I described with this person who got their [ K-cups ] within a few hours. It seems like a transactional experience, but there's a lot that goes on in the background for those kinds of things to come together. When I was growing up and in Central Arkansas back in the '80s, if you'd have told me you could hand me a device that ran on a battery and I could push a button on it and food would show up my house in an hour. I would have thought, wow, that's pretty exciting. But I don't mean to oversimplify, but there's a lot that has to go on the background for the intelligence to run to be able to serve customers in almost a one-to-one fashion at scale [ Technical Difficulty ] one location operation, or one Apple business or thousands of locations. So we'll continue to evolve. And again, I probably said this 5 times, and I'll say it 5 times more, it's where the customer is going and how the customers want to be served. How they want to be served will determine the way we make our changes at Walmart.

So let's talk about where customers are going. There's a lot of talk right now about red state, blue state and lower tax states, getting a lot of people moving across the country. And I was freely interested to see that your largest state by a wide margin is Texas, where you have 603 stores. And then you've got 386 stores in Florida. So those are sort of state migration 1 and state migration 2 right now in the United States. And then I was also very surprised that you only have 320 stores in California. And so as I saw those numbers, I sort of thought to myself, is that due to access to develop a land, consumer preferences or just amazing strategic planning on the part of Walmart.

Well, a great question. And let me comment you on your research, your attention to detail is fantastic.

I try, I try.

[indiscernible] so impressive. When we look at [ Technical Difficulty ] that we have, we operated -- think of concentric circles. So the first locations were in Northwest Arkansas, and as a number of locations built around there, the company would add then distribution capabilities that have weighted average distance routes. Imagine how many stores can you put in a 250-mile area, and then we would saturate with those geographies. And as we got into other territories, then we would open more distribution capabilities. So I think a lot of the concentration that you'd see in Texas and Florida happened a long time ago, and we continue to build in. Those are big markets, and they're strong. Texas [ Technical Difficulty ] Texas and then Western states took that longer. So I don't know if it was as much of perhaps luck or [indiscernible] history will tell. We do see [indiscernible] population shift and growth in places like [indiscernible] Florida, Tennessee, it's hard to get it exactly where everyone's coming from but when you drive around North Dallas and just look at the amount of construction, it's substantial. There's quite a lot going on there.

So I talked about red state, blue state. Obviously, we've just gone through a very challenging election season with inauguration of a new president. You've got Doug McMillon has [indiscernible] 2.2 million associates, and you have over 1 million underneath you. You're the largest employer in the world and what you say on everything from the minimum wage to health benefits to wearing masks is not only is it news, many people look to you to sort of establish norms and tell the world where Walmart is, and that's going to leave the rest of us to know where we ought to be. How do you and Doug manage the constant pull of talking about these issues and at the same time, if you will, doing what's in Walmart's best interest?

Yes. Every decision is different. Every scenario takes a considerable amount of thought. And I'll talk about -- let me put on mask for a second. As an example, early last year, we decided to source masks and to start distributing masks for our associates to wear. And the reason we did [ Technical Difficulty ] associates safety. Second was we want to serve our customers or we want to serve communities. And then there was a long list of needs after that. But first is, let's start, what can we do for associate safety? And that led to the decision of mask, plexiglass and we call them sneeze guards, social distancing store [indiscernible] and certainly, we were aware that when we change [Technical Difficulty].

I think I lost you again John. Yes, I lost you. Let's hold on for a second. I'm sure that John will come back in. Here he comes on another line. Are you back?

I'm back. Okay. So Willy, what I think I'll do is if there's a tough question, I guess, I can just blame on ...

Right, exactly. You can just -- I was going to go to the fact that you made the decision last week of not pulling funding from anybody who didn't support the confirmation of the electoral college. So maybe you just let the link go down on that one, and we'll come back afterwards for something that talks about store expansion.

Yes. Yes. Look, but certainly, things like mask wearing for us and then eventually for customers [ Technical Difficulty ] responses certainly and what we never intended when it came to associate safety [ Technical Difficulty ] in any way that, that could be a political decision always about the health and [indiscernible] best interest of our 1 million-plus people who are essential workers out in the field. And when we made those decisions fortunately a number of places [ Technical Difficulty ]

I think john is going to follow on me again. John are you there? So a couple of things as I wait for John to come back in, one is that Walmart has started to provide inoculations to COVID in a number of states, including Georgia, Maryland, South Carolina, Texas and Puerto Rico. John, you back with me? No. So I'm going to -- we've only got about 3 minutes left here. And so I'm hoping that John will reconnect so that I can -- let's see if he's coming back on here. I had a number -- you back?

[ Technical Difficulty ] happening. It is what it is, right? This is living on Zoom. Some days are better than others. Like you started us with, but at some point, it will be great when we can sit across from each other in a couple of chairs and have a room full of people and worst thing happens is that the microphone quits working.

There you go. Well, it's exactly right. And what I'm going to do is I am going to come down to Bentonville and we're going to go for bike ride together, and then we'll take this thing -- let's say, round 2 live. Before I lose you, just 2 other quick things. One of the things that I just wanted to understand because of the size and scale of your businesses, you can move in any direction you want. You can vertically integrate. You can do white label products. You could get into the shipping business, you can get bigger into the pharmaceuticals business. What -- when your biz dev team comes to you with an idea, how big does that idea need to be to have you even focus on it? Because I said around we're $1 billion revenue company, and I sit there and say, if it's not going to be 10% of revenues, we don't even focus on it. So don't even talk to me if it can't be a $100 million business, but you're such a size and scale that the concept of looking at anything is like buying half an industry.

Yes. Well, you'd probably be surprised. I'll look at about anything [ Technical Difficulty ] take real projects and small ideas that may scale [ Technical Difficulty ] a really important part of what we do. And I could probably give you so when we tried things and we were way too early, and now they're at scale, then our pickup in grocery home shopping business, we call online pickup and delivery. Remember trying back in the 90s and a good story. I met my wife working at Walmart. And one of her jobs was a delivery system where customers could fax in their order, we would shop it and then we would deliver. And it failed, it was tiny and it didn't work. But looking back now, I think we were on to something. I try to assume every idea, it may be the next thing. You never know. And maybe it scales $1 million or $1 billion, but I can tell you one way to be sure or to not know whether it's $1 million, $1 billion is not try it at all.

Yes, exactly. Well, that's great. And I see that we're at the bottom of the hour, and the technology has been going in and out. So I want to -- while I still got you, I want to just say, first of all, thank you so much. Great hearing all your thoughts. Congrats on all you've done at Walmart. And as I said previously, I very much look forward to grabbing my bike and coming down to Bentonville and going and biking on some of those trails you've talked to me about.

Me too, me too. Sorry for the connection, but thanks for the time and look forward to seeing you in person at some point.

Great, John. Thanks very much. Thanks, everyone. We'll see you next week.