Wal-Mart Stores Inc.’s half century of growth — making it the world’s largest retailer and the world’s largest company by revenue — has changed the retail sector in profound ways. 

Consider this: Wal-Mart founder Sam Walton’s autobiography, “Made in America,” is reportedly not just a favorite of Amazon founder Jeff Bezos, but also the source of inspiration for Amazon’s development — including the willingness to make mistakes and the focus on eliminating the middle man. 

But in a twist, Wal-Mart CEO Doug McMillon gave out Bezos’ biography to his top executives when he was tapped to lead the company a few years ago. 

The anecdote is an example of how Wal-Mart today is reacting to the changes in the retail world, instead of instigating them as it once did. 

In some ways, little has changed at Wal-Mart from its founding. The company has had just five chief executives since it became a publicly traded company in 1970, while current CEO McMillon learned from Sam Walton himself as he climbed up the ladder after starting his career as a Wal-Mart store associate. 

McMillon has deep roots in Arkansas and at Wal-Mart, but he’s also the youngest CEO of the retail giant since Sam Walton. Many believe he was tapped in part to help the retailer catch up in an age of disruption, especially given his background in retail operations, buying, and logistics and distribution — key targets of change at Wal-Mart today.

As McMillon approaches the end of his second year as CEO, the world's biggest retailer faces a number of challenges. How well can Wal-Mart — the huge old guy on the block— continue to fare in the face of competition from more agile competitors? It’s a question with layers of answers, but it could, essentially, involve figuring out which aspects of its legacy should stay, and what may have to go. 

Wal-Mart's tradition: 'Always low prices'

The great promise that Sam Walton made to his customers from his first day in business was: “Always low prices.”

To keep that fabled promise and still rack up profits, Wal-Mart has played hardball with its suppliers and with its employees, for which it’s garnered some bad press.

In the mid-1980s, Wal-Mart developed a $4 billion software and hardware system that collected information about consumer behavior based on what they were buying. Wal-Mart then gave vendors the information, and eventually even the software, to help them stock the right inventory in the right store locations. That created some problems for some vendors.

“At the heart of Wal-Mart's offer to share its software program was a Faustian bargain for suppliers: Use our Retail Link program, play by our new rules and we will be your gateway to sales beyond your wildest dreams,” writes Sam Hornblower in a PBS ‘Frontline’ report. “Or refuse, and be shut out of America's dominant retail chain.”

There was a time when competitors who tried to compete on price got shut down.

Decades ago, Target tried to take on Wal-Mart on price, according to Mark Cohen, a professor of retail studies at Columbia University and an employee of Target’s parent company at the time. Target was blindsided by the extent to which the retailer was willing to forego profits to win a price war. In fact, Wal-Mart was willing to ship to other retail operations that found items priced lower than some wholesale prices. 

Target ultimately abandoned the effort, Cohen told Retail Dive in an interview.

“When you do business with a Wal-Mart,” Cohen says,“you’re essentially entering an extortion play because Wal-Mart becomes your biggest customer. You build your logistics around it. You have the benefit of volume, and very efficient volumes. It’s all good assuming that business continues in some orderly way.” 

Now, according to recent reports, Wal-Mart is seeking to change up its contracts with vendors, asking for even lower prices from suppliers in exchange for Wal-Mart dropping fees for marketing and shelf designations. But suppliers are now balking because they had gotten used to building in those extra fees and appreciate what those fees get them, according to Jason Goldberg, vice president of commerce at digital marketing firm Razorfish. The changes are part of Wal-Mart’s effort to loosen some control from headquarters and return it to store managers, he said.

"The reason is, it's crushing for those vendors," Goldberg told Retail Dive in an interview. "They're already used to paying for that, and already had a sales forecast for being [at a certain spot on the shelf]. Wal-Mart's move takes away those extra selling opportunities. There's no competitive differentiation without them."

Will Wal-Mart move beyond its 'always low prices'?

In the age of e-commerce and omnichannel, price may not be the best field to compete on any longer.

By emphasizing price for many years, Wal-Mart has conditioned its own customers to always get the best deal. But these days shoppers can turn to Amazon, Jet, and even Wal-Mart’s own website — all of which have successfully beat Wal-Mart stores on price recently.

But it’s not just that Wal-Mart is more likely these days to lose on price. It’s also that some other retailers — notably Amazon and Target — are less likely to compete on price, according to Cohen and other experts Retail Dive spoke with in recent weeks. Both retailers have found other ways to differentiate themselves.

For Amazon, that differentiation is housed mostly within the vast ecosystem of its Prime membership, from delivery to streaming services. Its payment system is secure, its customer service is stellar, and its product assortment is enormous. Much of that assortment is boosted by its formidable marketplace.

Amazon's business model is aimed at leveraging the spend of Prime members, who spend $1,200 on the site annually on average, compared to $700 from non-Prime customers. Wal-Mart customers don’t have the same incentives to stick to Wal-Mart that Prime members have to stick to Amazon.

And there's a coolness factor that Amazon enjoys that is largely lost to Wal-Mart, according to Cohen.

"Amazon is 'cool' to everybody," he said. "Wal-Mart is 'uncool' to everybody."

Losing customers to search

Amazon’s superior search is another disruptive challenge for retailers like Wal-Mart.

“Some studies have found that as much as 30% of consumers start their research on Amazon rather than Google, and that’s an opportunity for Amazon to win that Wal-Mart customer,” Goldberg said. “There’s more of that behavior as more shopping shifts online.”

That has prompted Wal-Mart to improve its product listings online with better descriptive information, and to introduce initiatives like “Savings Catcher,” a digital price-matching tool at Walmart.com.

But in many ways, Goldberg said, Wal-Mart’s efforts are protective of its brick-and-mortar stores, perhaps because of the difficult nature of e-commerce. 

“The dirty little secret of e-commerce is, it’s tough to be profitable. Especially when you add things like free shipping and free returns,” he added. “When you look at profitability at first parity goods out of brick and mortar, it’s much higher.”

To improve customer retention, Wal-Mart is looking at its stores, Goldberg noted. Order online and pick-up in-store helps the customer that visits a physical location. Among other services, the company’s tax-prep, banking, insurance, and investment services are aimed at the lower- to mid-income consumer that doesn’t necessarily have access to traditional outlets for those services. The retailer has also recently taken steps to improve its inventory on shelves and clean up its stores, two things that observers have been critical of for some time now.

“Those are all great opportunities to serve the Wal-Mart customer better, and gets them to be more and more sticky,” Goldberg said. “Do your taxes here, cash your paycheck, do your grocery shopping. This is how to improve the share of wallet for that core Wal-Mart customer, more so than trying to move upscale and appeal to style shoppers" the way, say, Target and others do.

What’s next for Wal-Mart?

Today, Wal-Mart faces the challenge of deciding which aspects of its culture, business, and operations it should keep — and which it should change.

This summer, Amazon reported Q2 results that pushed the e-retail giant's market value past Wal-Mart to over $264 billion in after-hours trading. This switch-up had many people saying that e-commerce has become an even more formidable threat in retail, on its way to play a more central part in the economy and retail itself. 

But even without these positive results, Amazon enjoys immense patience from its investors, while Wal-Mart is under constant pressure to deliver growth—which has been flatter in recent years compared to its earlier double-digit results. Meanwhile, Amazon enjoys a reputation for investing in the long term and attracts investors with the same mentality, or at least with the patience to wait for positive results. While it may be easy to compare Amazon and Wal-Mart, given both of their massive size, their investors' contrasting approaches to growth is reflected in many of their present initiatives and future plans. 

A Wal-Mart spokesperson declined to answer questions from Retail Dive for this story. But McMillon and U.S. CEO and president Greg Foran have both acknowledged many of Wal-Mart's challenges and have outlined steps the retailer is taking. 

One such step appears to be greater control at the store level over merchandise and layout. It's a long term project — more like a series of projects, really — that will take some time. In the end, it will be the customers who decide how much time Wal-Mart has to get things done.

"There is only one boss," Sam Walton once said. "The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."