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Can generative AI help Walmart to be who it wants to be? CEO Doug McMillon thinks so

Stuart Lauchlan Profile picture for user slauchlan August 18, 2023
Summary:
Walmart e-commerce sales are up 24% year-on-year, but still not showing a profit. Will generative AI make a difference in boosting digital margins?

walmart

We like who we are and we like who we are becoming.

A confident assertion from Walmart CEO Doug McMillon as the retailer turned in a solid Q2 performance in contrast to the disappointing showing by Target earlier in the week. So, who is Walmart? According to McMillon: 

We're a people-led, tech-powered, omni-channel retailer dedicated to helping people save money and live better…We can serve people how they want to be served whether that's in a store club, picking up an order curbside or having it delivered…We're setting the right capital priorities, and you can expect us to continue investing in the areas we've talked about, like technology, including automation.

Here comes the AI…

By now, readers will know that what’s about to come is the inevitable Artificial Intelligence pitch. Sure enough, McMillon reckons that generative AI is about to make a big difference to his business: 

Our approach to new tools like generative AI is to focus on making shopping easier and more convenient for our customers and members and helping our associates enjoy more satisfying and productive work. Ultimately, the power of generative AI or any technology is only as good as the data that powers it.

Our data assets are unique, and we're excited about the potential to leverage them in new and impactful ways. We're taking Large Language Models developed by our partners and by the broader tech community and adding retail context to create models that are uniquely suited to the needs of our customers, our associates and our supply chain. We'll unlock value for shareholders through the combination of our physical automation work with our data and increasingly intelligent software. 

Cleaning up data is something that LLMs can help with, particularly around personalization and the Walmart+ customer loyalty program, he suggests, noting that the firm wants to have “a digital relationship with as many customers as possible”: 

We've been working for a few years now to try, and get our data in better shape so that we can really put it to work. We still got room to improve there, but we have made progress.

When you start imagining what we can do to personalize for customers, and members more effectively…There's a great opportunity for us to be more anticipatory, and to be more relevant to them, and communicate in a way that shows that we know who they are in a healthy way, while protecting privacy.

So having that data, go to work with our own Large Language Models, and using Large Language Models from others, presents a tremendous opportunity. And I think it will unlock a lot of use cases on the customer member side.

Delivery

Another priority is further improving fulfilment of orders, whether in the form of customer pick-up or delivery. McMillon points to successes here, with stores being used to fulfil half of total digital orders: 

Our stores and clubs give us a competitive advantage and power our omni-channel model. Our curbside pickup business continues to grow as people look for ways to save time, and store-fulfilled delivery is now growing faster than pickup across all three segments. Delivery speed and accuracy are obviously important, and we lack how we're leveraging our physical assets.

In the US, we have more than 4,000 stores and nearly 600 Sam's Clubs making same-day deliveries. And in nearly 2,000 stores and clubs internationally, we're increasingly measuring those deliveries in hours rather than days. In China, where we deliver from all our stores, nearly 80% of digital orders are delivered in under one hour. I like how we're constantly improving delivery speed. It's important to our customers and to our strategy. 

My take

Running great stores and scaling e-commerce are and will be our top priorities. 

There’s some reason for McMillon to be happy here. Q2 e-commerce sales were up 24% year-on-year, while weekly active digital users grew more than 20%. That said, there’s still no sign of e-commerce profitability, as CFO John David Rainey admits: 

One of our strategic priorities is improving digital margins with an eye towards e-commerce profitability. I'm pleased with the progress we are making, particularly in Walmart US contribution profit, which has been driven by fulfillment efficiencies and better product margins.

He points to evidence of that progress, such as a 14% increase year-on-year of customers buying items on Walmart’s online marketplace, while the number of sellers using the firn’s fulfilment services was up 50%. 

Overall, still a journey with a way to go, but the direction of travel is certainly on track. 

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