Walmart Continues Its Transformation Into A Technology Company
At this past June’s Walmart Associate and Shareholders Meeting, CEO Doug McMillon continually referred to Walmart as a “technology company.”
That had many people scratching their heads saying, in effect, Walmart is not Microsoft, Google or Amazon, for heaven’s sake. MIT Technology Review asked, “Walmart wants us to believe it’s turning into a tech company?”
Doubters need to step down. Walmart has partnered with two of those tech leaders – Microsoft for cloud computing and Google for voice-activated shopping – and made a number of acquisitions and investments to elevate its ecommerce platform, along with investments in in-store automation that will eventually enhance operations efficiency within its nearly 5,000 stores.
Walmart is executing on its digital transformation. Following Walmart’s October 16 Investor Community meeting, Oliver Chen, Cowen and Company analyst covering retail and luxury goods, came back convinced.
“The Wal-Mart brand is at the center of a new ecosystem which integrates shopping, services, health and wellness, and first party and marketplace e-comm,” Chen wrote in a memo to investors. “WMT is seizing the moment to transform through innovation and utilization of unique store, grocery and people assets. We believe new guidance appears achievable and beatable.”
The linchpins of Walmart’s transformation are digital innovation, products and most especially people.
Digital excellence gets Walmart into the game
At this past January’s National Retail Federation Big Show, where McMillon was honored as The Visionary at the NRF Foundation Gala, he told the story of the company’s awakening to the need for change. “At some point, Walmart became big and societal expectations changed. And we missed the memo,” he said.
Gaining digital traction was first on his list. Walmart’s solution was to acquire, rather than build, digital competence first with the purchase in 2015 of Yihaodian, a B2C-based e-commerce company in China, then the $3 billion acquisition of Jet.com in 2016 which put Walmart seriously into the game.
“The world’s largest retailer with no close second was far behind in the online race,” Shelley E. Kohan, assistant professor Fashion Institute of Technology says. “I will not say dead last, but close. With the decision to acquire Jet.com, we knew that Mr. McMillion was serious about leapfrogging ahead of the competitors.”
More modest-sized acquisition followed, including Shoes.com. Moosejaw, Bonobos, Eloquii and most recently Bare Necessities in the fashion space and Parcel and Cornerstone in delivery. But Flipkart, the online shopping platform with 100 million registered users in India was its biggest to date.
In the short term Flipkart will contribute losses, but Walmart is betting on the long term given the country’s favorable demographics including “1.3 billion people with a median age of 28, 2X GDP per capita growth over the past decade and expectations for India to become the number three economy by 2030,” Chen writes.
Chen also notes Flipkart has a “compelling ecosystem,” with the Flipkart platform at its core contributing ~80% of revenue, along with Myntra and Jabong operating as specialty fashion sites, combined with the company’s Ekart logistic and delivery service and PhonePe, India’s second largest payment company.
On the other hand, Gabe Weiss digital customer experience consultant at SapientRazorfish, says, “Flipkart was a great– and expensive – purchase, but now they have to integrate, execute and scale,” which he expects to be a 7+ year process, not one that will happen over night.
On the home front, Walmart.com and Jet.com both got a redesign. And Walmart.com will continue to enhance the shopping experience in different specialty categories.
Beginning first with the online home shopping experience, Walmart will be adding a new specialty shopping experience to fashion soon.
“We want each category to feel like you are shopping a specialty store and we plan to build out these specialty experiences for other categories starting later this year,” Marc Lore, president and CEO of Walmart U.S. e-commerce, wrote in a statement.
Delivering products customers value
Cowen’s Chen applauds Walmart’s continued commitment to value pricing for its customers, but believes it is “over assorted” particularly in consumables where it should use data to eliminate excess.
At the same time, he calls out the company’s expansion into new categories with new brands including private labels that “resonate with consumer values, have transparency and authenticity as well as artisanal qualities.”
Walmart’s two most recent acquisitions have those in spades – Eloquii for plus-size fashion and Bare Necessities in foundation intimates.
In its recent announcements, Walmart laid out its acquisition strategy with Bare Necessities fitting the first and Eloquii the second:
1. Acquiring companies that strengthen Walmart.com and Jet.com by enhancing both their category expertise and assortment (e.g., Shoes.com and Moosejaw).
2. Acquiring digital brands that are unique and differentiated, offering products and experiences you can’t find anywhere else.
On Bare Necessities, FIT’s Kohan remarks, “Immediately Walmart has shifted its lingerie business from a necessity business to a fashion-smart lingerie assortment with high-profile brands.”
Regarding Eloquii, Walmart’s Andy Dunn, SVP of digital native brands, said, “We are laser focused on developing a portfolio of direct-to-consumer brands with a unique assortment you can’t find anywhere else,” and points to Eloquii as offering fashion-forward style to more than half of American women who wear size 14+.
“This is a segment of the market that has been historically underserved and neglected. We believe she deserves better,” Dunn continued.
Strategic partnerships too bring Walmart customers access to new products, specifically Lord & Taylor in upscale fashion, Rakuten for the Japanese marketplace, Advanced Auto Parts and the new EV1 clothing collection from Ellen DeGeneres.
For the future, Chen sees huge opportunities for Walmart in the growing health and wellness market thanks to its pharmacy service. With over 4,700 local pharmacies, Chen sees Walmart playing an increasing role in health by combining its medical intelligence with grocery shopping services.
Over 60% of its pharmacy customers have diabetes, he writes, “WMT has a critical role to play in communities in order to combine testing, diagonals, services, and medication alongside grocery and nourishment needs. For example, we believe diabetes patients could benefit from personalized grocery shopping advice.”
People are Walmart’s not-so-secret weapon
Walmart’s people working behind and along side its digital platforms are the real secret weapon that will continue to power its transformation into a technology company.
Driving the tech train are a dream team of retail-digital visionaries: Marc Lore (Jet.com), Andy Dunn (Bonobos.com), Jenny Fleiss (Rent-the-Runway cofounder and now heading up the company’s Store Nº8 technology incubator, whose mission is to “Create the future of retail”) and Denise Incandela (Saks) who joined the company with serious fashion bona fides along with online expertise.
This August the company also added Janey Whiteside from American Express to its team as the company’s first customer officer. Her role will be to oversee the customers’ journey to enhance and align their in-store and online experiences.
“It’s my responsibility to represent the customer and be the advocate and voice across everything that we do,” Whiteside said at the Investor Community meeting.
The company’s habit to retain executive talent from the brands that it acquires is also key to its ongoing future success. Eloquii’s CEO Mariah Chase will remain at the helm and Bare Necessities’ CEO Noah Wrubel will take on an expanded role leading intimates for Walmart.com and Jet.com.
As for Walmart associates, they will get a huge assist when the company rolls out planned in-store automation robotics to do much of the day-to-day grunt work like reading inventory, cleaning floors and picking stock for order delivery. This will free up personnel to serve customers, rather than service its physical stores.
To further end, some 500,000 Walmart associates will get advanced leadership and service training through Walmart academies.
In addition, Walmart is set to open a new automated distribution center in 2020 that will improve delivery of fresh produce and cut out days in the process to assure the freshest quality.
On its investment in the new high-tech distribution center and in-store automation, the company said, “Walmart is investing in technology to empower associates to do their jobs better and more efficiently. The high-tech Shafter [CA] distribution center is just one example of Walmart making big bets when it comes to the future of retail.”
Focus on what is “un-Amazon-able”
In Chen’s analysis Walmart is best positioned against Amazon when it focuses on what Amazon can’t do. Amazon may have 100 Prime customers, but Walmart serves nearly three-times (270 million) as many each week online and in its 4,761 locations within 10 miles of 90% of the U.S. population. Leveraging its physical assets and personal relationships with customers is Walmart’s ultimate competitive asset.
The possibilities are endless, in Chen’s view, as long as Walmart continues to focus on the fundamentals of delivering exceptional value and new assortments with improved access in store and via website enhancements for online customers.
Other in-store enhancements Chen sees as critical to success are a new item-finding phone app where customers can locate an item they want via a virtual map in store, an automated pharmacy dispensary so customers can retrieve phoned-in or online-ordered prescriptions though a ATM-like machine, and more store pickup and same-day delivery of online orders.
“WMT is focused on creating a tech-empowered store to improve both the shopping experience as well as support associate productivity, with the core message of removing friction from the way customers interact with the store,” Chen writes.
“Management believes that executing well [on the fundamentals] will help WMT become a world class omni-channel retailer and will turn physical stores into fulfillment centers,” he continues.
Now Walmart must stay the course
Walmart is well positioned to achieve its goals, has the vision to see the opportunities and is not afraid to take risks and make long-term investments for the future.
Cowen’s Chen is upbeat about Walmart’s long game, but has concerns “stemming from continued e-comm losses and persistent gross-margin headwinds.”
Chen sees profitability pressure coming from its continued investments in technology and initial Flipkart losses, as well as rising costs for day-to-day operations including transportation and labor.
All the same, the transformation of Walmart from its brick-and-mortar discount roots won’t be easy, as Judith McKenna, president and CEO of Walmart International overseeing the Flipkart acquisition, said in a Fortune magazine interview, “We’re not at heart a tech company. There are other people who can be better at that than us.”
The next two-to-three years will tell whether Walmart can realize its ambitions to become a thoroughly-modern technology company.
SapientRazorfish’s Weiss warns, “Any true DNA or cultural transformation won’t happen overnight. It requires long-term commitment from management and the board. Many companies, like Walmart, are in the critical 18-month to three-year window when resistance becomes louder without performance improvements.”
“Companies in the midst of transformation may lose commitment from CEOs and boards whose expectations have not been well managed,” Weiss continues.
Based upon Chen’s report from Walmart’s recent Investor Day, McMillon and team are on it.