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How Walmart aims to balance macro-economic consumer realities with getting a return on tech innovation

Stuart Lauchlan Profile picture for user slauchlan February 22, 2023
Summary:
A 'business as new normal' in the Vaccine Economy update from the retail giant.

walmart

We have become an omni-channel retailer. Who else has the stores and clubs so close to so many customers and members, combined with first- and third-party e-commerce and the combination of grocery and general merchandise and in multiple attractive countries? We're in the right markets with a breadth of assortment and ways of shopping like no one else with impactful and emerging digital and technological capabilities.

That’s the upbeat assessment from John David Rainey, CFO at Walmart, as the retail behemoth turned in…well, pretty dull quarterly numbers yesterday. But in the current macro-economic climate, dull is desirable, certainly more so than the kind of earnings reports that triggered the hysterical panic on Wall Street when retailers such as Walmart and Target didn’t carry over the soaraway digital growth of the COVID crisis into the Vaccine Economy.

There’s been a course correction since that occurred last year, insists CEO Doug McMillon: 

When we think about our business today compared to what it was during prior economic downturns, we now have a more compelling offer, a true omni-channel experience that makes us optimistic that more higher income families will continue shopping with us across categories because we have pickup, delivery and membership.

It’s time to be a safe pair of hands as consumers face up to increased budget pressures, but it’s also important to keep innovating in terms of technology, he adds: 

As it relates to our customer or member value proposition, we continue to have a strength with respect to value, while we're expanding choice by growing our assortment on Walmart.com and we're improving as it relates to experience. Being an at-scale omni-channel retailer creates unique opportunities to innovate in the area of experience. That includes products like scan & go at Sam's Club and a newer in-house conversational AI platform enabling a voice and chat capability being used by more than 50 million customers and an average of 1 million associates across the US, Mexico, Canada and Chile.

Over the last three years, while our frontline focus was on navigating the pandemic and inflation, we still launched and started scaling new complementary businesses using the technology and expertise we developed over time. You can see this in some of our recent announcements. The partnership we announced with Salesforce to help scale local fulfillment and delivery solutions for customers on their e-commerce platform is a good example, or our new Walmart business e-commerce site is another, where we're helping small and medium-sized businesses and nonprofits save money and spend less on purchasing the items they need every day.

Local 

That Salesforce alliance could prove to be highly-significant decision. Walmart’s always boasted about the proximity of its physical stores to US consumers. In Q4, e-commerce sales growth was driven by store-fulfilled pick-up and delivery. In fact,  over the last two years, store -fulfilled delivery sales have nearly tripled, hitting over $1 billion in value per month. 

That’s a point of pride to John Furner, CEO of Walmart US, who highlights the role of the firm’s workforce in expanding the ability to deliver from stores as fulfillment centers, tied into the use of new automation tech: 

There's a lot of investment that we feel great about the return possibilities, given the experience we've had with some of these technologies. As you bundle all this together, we're positioning ourselves well, I think, to be able to grow and continue to grow like we have last few years. Since we merged our e-commerce and store business together just about three years ago in Walmart US, we’ve seen growth of almost $80 billion for the three years. So quite a bit of growth there, and the team is really focused on top line, as you'd expect of a big merchandising organization like this one.

The Walmart+ membership scheme, which offers unlimited free delivery, fuel discounts and access to online tools to assist with shopping, continues to be an important part of the overall go-to-market play, he adds: 

It's a way that customers can access an interesting combination of all of our assets from our digital front end, which gas become one experience over the last couple of years. The fact that we have inventory within 10 miles and [close to] 90% of the population is another way that this all comes together.

That said, there’s still no clear info coming across about just how successful Walmart + take-up is. Metrics are decidedly thin on the ground, deliberately so, according to McMillon: 

We'll continue to describe Walmart+ to you, but not do that in such a way that the market gets overly-focused on that metric, because we want to be evaluated on several metrics, not just one metric. We've seen other companies with some sort of short and where people are watching one metric to determine the future of the company. That is just not that simple in Walmart. Obviously, people want to pay for delivery in bulk with an annual membership, not per delivery. That's what led us to this point. And now it opens all kinds of opportunities to us. We like what's happening behaviorally with Walmart+, but it's just one component of a plan.

Furner expands on the business model by adding:

It's becoming more difficult to measure the differences in e-commerce and stores because stores are acting as fulfillment centers at times, they’re stores primarily, and then there are fulfillment centers. There are a lot of blurred lines between all these channels. So having an offer that is great for consumers in terms of the behavior they're seeking, which is convenience, and not worrying about incremental delivery fees, is working fantastically.

It's also important to note that this tends to be a younger, more tech-savvy consumer, which is great, in some cases, a higher income customer. So, as we've said in the most recent quarters, we've gained share with higher income customers. Walmart+ with delivery and then these other businesses like advertising, fulfill services marketplace, all add up to a better proposition for both the customer and the company.

My take

If you look at our e-commerce business today, it's an $80 billion business and still growing, and we have a lot of opportunity there going forward.

A much more ‘business as some kind of new normal’ in the latest analyst update, although Wall Street was still cool on the firm on the back of a cautious, inflation-wary outlook from the retailer. As for more tech innovation plans, we’ll be looking to the forthcoming investors day for more on that subject. 

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