How Walmart US is growing its revenues
Last week at #ParisRetailWeek I attended a very interesting fireside chat between Matthew Shay, President and CEO of the National Retail Federation and Seth Dallaire, EVP and Chief Revenue Officer at Walmart US. The talk centered on the different ways in which Walmart is trying to grow its revenues. In short they involve: (1) omnichannel fulfillment, (2) more efficiency through investments in data and analytics along with data monetization, (3) their online marketplace, and (4) retail media. In addition, I found out the retail titan is increasingly trying its luck as third-party retail service provider, which could become another sizeable revenue stream.
But before we dive into all of that let us first go back to the great catalysator of retail innovations, the Covid pandemic.
During the pandemic
Since Covid, and further stimulated by the current inflation regime, Walmart US has noticed that middle income shoppers started buying more of its private label. The high-income shoppers, a segment that typically does not shop at Walmart that much, represented the fastest growing segment. Perhaps for the first time price became a decision factor and they found out they could find all the brands they were looking for at Walmart bundled with omnichannel convenience (in-store, home delivery or curb-side pickup).
During the pandemic Walmart noticed that their online pickup and delivery (a practice more commonly referred to as click and collect in Europe) really resonated with customers. This is a great way for Walmart to leverage its gigantic store footprint with ~4600 stores in the US for 95% of US households there is Walmart store within a 10-mile radius.
Third-party retail service provider
Interestingly,?Walmart was also represented with a booth in the retail tech section. Turns out that, using the name Walmart Commerce Technologies, the retail giant is providing third-party retail services related to omnichannel store fulfillment. Walmart is using its own expertise in buy online, pickup in store and ship from store to offer a range of tech solutions designed to help other retailers in this domain.
The whole operation still seems a bit in stealth mode. The lingo that was used (BOPIS and click & collect) seemed targeted at the European market. This makes sense, this way Walmart doesn't strengthen their direct competitors in the US.
When I asked about their (pilot) customers, they among others mentioned British supermarket chain ASDA. That makes for an interesting "full circle"; ASDA was once part of the Walmart umbrella. As Jason del Rey explains in his magnificent book "Winner Sells All: Amazon, Walmart, and the Battle for Our Wallets", at the time they still owned ASDA, Walmart US learned from the failures of its subsidiary in home delivery, and the successful pivot to click and collect. With this in mind it started with online pickup and delivery in the US before really moving into home delivery. In fact, in the period after the famous Jet.com acquisition this type of fulfillment was responsible for the bulk of the online sales (whether the term online sales is appropriate is a whole different discussion, but hey the customer is the channel). So, after Walmart perfected the model they are now licensing the tech to its former subsidiary that was used for inspiration at the very beginning.
Curious to see where this goes. Their presence at the Paris Retail Week definitely seemed to be part of a big push of this new business model. Note that its rival 亚马逊 is getting a lot more attention for its tech licensing activities such as the Just Walk Out technology. Perhaps because it's more in plain sight.
Omnichannel fulfillment
Walmart uses in-store pickup towers, taking labor out of the equation at pickup.
They also offer curbside pickup. Customers can park their car in a dedicated spot (communicated via the app), where their groceries are delivered to the trunk of their car. A representative of Wallmart Commerce Technologies told me they aim for a maximum 4-minute waiting time at pickup. Getting a coffee at Starbucks takes longer nowadays.
All of its efforts in this domain definitely seem to be paying of from a revenue standpoint (note I am not saying profit): Early 2022 Walmart was reported to pocket more than 1 in every 4 dollars spent by Americans on click and collect (source CBNC).
Seth mentioned that being customer obsessed means they are still trying to learn as much as they can about the process of online pickup and delivery. This means talking to customers, getting their feedback. They are also continue to invest in the app as most, and a still increasing number of, online orders are done on a phone.
As part of an omnichannel proposition they also continue to invest a lot in home delivery. They have the Walmart + membership, for an annual fee of $98 the customer receives free home delivery. Seth mentioned that the battle for the last mile is more and more focusing on the last 100 feet. Under the Walmart InHome banner the retailer offers a range of in-home deliveries (e.g., garage, counter top, fridge) at an annual membership fee of $138.
Seth used the term omnichannel convenience to refer to being in all the places where the customer is/wants you to be, using technology to provide a seamless experience.
It is worth mentioning that buy online, pickup in store (BOPIS) does come with a lot of challenges. In a recent editorial at the Journal of Operations Management on how to advance the marketing-operations interface in omnichannel retail, we (together with Sander de Leeuw and Alexander Hübner ) detail what these are, along with those of other omnichannel fulfillment models.
领英推荐
Even though having the customer come to the store may save on last mile delivery costs, in-store picking tends be a lot less efficient compared to when it's done (using automation, in batches,..) in a dedicated home delivery center. The retailer also has to carefully manage the process of in-store picking alongside shoppers that made the effort to come to the store to do "their own picking". What in-store customer would like to see an employee pick the last item of the shelf when that involves a product they had set their eyes on. Realizing it's in favor of an online customer that is set to pull up later, in a reserved parking spot near(er) to the store? Who is doing the hard work here?
Investing in data and analytics
Using the name Walmart Data Ventures (WDS) the retailer is heavily investing in data accuracy and availability. The idea is that better data quality should increase efficiency, which in turn allows the retailer to lower its prices. More and better data are available on inventory location, compliance of shelf layouts, inventory turns, etc. Data is captured at a more granular level (e.g, store-SKU) with higher recency (e.g., last 24 hours). The data are not just used by the operations functions but also by the merchants, to improve category management decisions.
The retailer is also sharing these data with its suppliers. For a fee that is. Effectively they are selling data that they were giving away for free in the past, but at a more detailed level, and with higher quality. Besides pocketing the fees, Walmart is also counting on smarter suppliers to create more efficiencies for the retailer. An example in Seth's words: "that they ship those products to the places where they're needed most".
The first analytics solution that Walmart has launched under the WDS umbrella is Walmart Luminate, which is described as follows:
"With Walmart Luminate Shopper Behavior, capture granular shopper behaviors and brand performance trends – across channels, stores, baskets, and even UPCs so you can set benchmarks, evaluate brand positioning, and find white space."
It seems to be a rich dashboard that allows suppliers track brand performance at the channel, store, basket, and UPC level. There seem to be some nice visualizations in the tool too. But for the most part this seems to be just an intelligent dashboard centered on providing hindsight, and perhaps some insight. Something that we (w/ Andres Musalem and Nicole DeHoratius) refer to as descriptive ("what happened?") and diagnostic analytics ("why did it happen?") in our article on retail analytics. That still leaves a lot of room for more advanced analytics such as predictive analytics ("what will happen?") and prescriptive analytics ("what should I do to make something happen?").
But all in all Walmart is steps ahead of most retailers. In a set of interviews with global practitioners, the desire for data monetization, such as the Walmart example, came up a few times. But at this point many retailers are not even able to unlock the full potential of analytics for internal purposes due to data siloes, poor data quality, and low data frequency.
Online marketplace
In general merchandise categories Walmart's competitor Amazon offers billions of products. Hence the name "The Everything Store", coined by Brad Stone. This pales the assortment of a Walmart Supercenter, about 120-125 thousand products, by comparison. But even online Walmart's assortment is "only" a couple of millions. To close this gap Walmart is increasing its investments in building an online marketplace.
Like vendors on Amazon, suppliers can use dropshipping. But, they can also outsource fulfillment to Walmart, which offers a range of fulfillment solutions under the name Walmart Fulfillment Services, similar Fulfillment by Amazon.
Growing the long tail in an economic fashion and making money by providing fulfillment services are two additional revenue streams for Walmart.
One of the most interesting things that Seth mentioned in relation to the online marketplace was how it was effectively serving as an incubator for the physical assortment. New challenger brands that may find it hard to obtain distribution in stores now have the opportunity of the digital shelf. Walmart tracks eye balls, trial, and repurchase behavior to decide which brands to bring from the digital space into the store. A very omnichannel way of assortment planning. I am curious how Walmart decides in what stores the brand is added to the assortment when successful online. They should have a lot of consumer (and location) characteristics to help them decide on a smart rollout.
Retail media
The final revenue stream that Seth discussed was retail media. Under the name Walmart Connect they are operating a platform that allows suppliers to promote their products in-store through digital screens, sampling, etc, or online using paid search, video, etc. Walmart claims that their tools allow a brand to determine the ROI of these investments by relating the investments to number of views, purchases, reviews.
Walmart promises to create accountable, measurable results. That sounds great, but I wonder about the machinery behind it. Correlation does not equal causation, and attribution modeling, especially the omnichannel kind, is notoriously hard. Ultimately, brands want to know about the uplift in <fill in your favorite metric> per dollar spent, ideally broken down per target demographic. That requires proper A/B testing or techniques that can deal with quasi-experimental designs, and customer heterogeneity in both. One would certainly expect causal Machine Learning to be part of that.
Further reading
Here some recommended readings if the topics discussed in this article were of interest to you: