More automation to come as Walmart expands its footprint to redefine retail

Stuart Lauchlan Profile picture for user slauchlan February 18, 2022 Audio mode
Walmart isn't just for groceries and home essentials any longer...


Sometimes it feels like 2020 and 2021 were just one long year.

So says Walmart CEO Doug McMillon, a sentiment that most of us can relate to perhaps? But through the COVID crisis and now into the Vaccine Economy, the basic mission statement of the retailer has remained constant:

It starts with a customer and earning primary destination. The big basket stock up trip is important. It's foundational to our relationship with families. We earn that shopping occasion by running great stores and clubs and offering seamless pick-up and delivery experiences, including for our Walmart+ and InHome members in the US.

Having an omni-channel infrastructure is key, he says:

Building a seamless omni-channel experience for customers and prioritizing convenience for them is critical. Our stores have become hybrid. They're both stores and fulfillment centers. Last year, we increased the number of orders coming from our stores by 170% versus the previous year. And that's on top of more than 500% from the year before. Having inventory so close to so many customers is a competitive advantage. In some cases, we're getting items to customers in hours rather than days.

That’s helped by digital tech, adds John Furner, CEO of Walmart US:

Having digital relationships with customers is so important. More and more, we fulfill from stores. Our stores also act as fulfillment centers, so this ability to interact with customers digitally is important. Our workforce is becoming more digital. You've got over a million associates who have a device in their hands from the minute they walk in until they leave, so that's saving them time. [We use] automation and supply chain, using automation to augment the things that our associates don't want to spend as much time doing so they can spend the time on the things that are value-added, like in-stock and availability.

E-comm, ads and fintech 

E-commerce sales only grew one percent year-on-year for the most recent quarter, but 70% from the pre-COVID 2019 base that most retailers now cite. The company’s e-commerce progress is going global, argues McMillon, with 21% penetration overall:

We're taking the learnings from the US and India and growing in places like Mexico, Canada and Chile. Importantly, we're beginning to build tech platforms that can be leveraged in multiple countries. Our strong team of technologists and our digital transformation enable global synergies. We see traction in our core business as well as in our newer businesses. There's real power in the ability to make these pieces mutually reinforcing. 

Of particular note is the related growth in Walmart’s advertising business, Walmart Connect, which has grown 130% year-on-year to become a $2.1 billion revenue contributor. McMillon notes:

Connecting B2B opportunities, like advertising, enables us to grow earnings and make key investments at the same time…The e-commerce business, first-party, third-party, is growing. It gives us opportunity to grow advertising income. It’s grown at a fast rate, and it’s growing across markets.

McMillon points to the firm’s Walmart+ membership program as a particular success story:

We're adding capacity for pick-up and delivery. We increased capacity by nearly 20% last year, and we expect to increase capacity by another 35% this year. For Walmart InHome, we recently announced an expansion of this membership service to make it available to about 30 million homes in the US, up from 6 million.

That said, he remains cagey on disclosing too much information about the take-up:

I don't really want to have the company defined by one metric. And with subscriptions being such a topic these days, everybody gets really focused on that. Walmart is always going to be a business where you need to look across and see how the omni-channel business is playing out. There are going to be times when e-commerce grows faster than stores. And as we've seen recently, stores are attractive during certain periods of time.

Walmart+ is important. It helps us grow our e-commerce business. It helps us deepen the relationship with customers and have more data. At some point, we'll probably talk about that number. And by the way, there are other types of memberships, not just in Sam's Club across the world, but in some of our other businesses too, that are growing, so I think there will probably be a number of membership-type metrics over time that [people will] want to keep an eye on. But I don't think it would be good if we're going to get overly focused on Walmart+.

The push into fintech is another highlight, operating under the ONE brand, he adds:

The combined talent of our JV leadership team and out of the pending acquisitions of ONE Finance and Even is impressive, and our plans are aggressive. We can help our customers and Walmart+ members save money, have an experience with less friction and help strengthen the financial position for millions of families.

My take

The company is becoming more digital. It is starting to become more automated and over time will become even more automated.

Walmart just turned in a solid set of Q4 numbers - a profit of $3.6 billion against a net loss of $2.09 billion for the same period last year, on revenue growth up 0.5% to $152.9 billion.  What’s is interesting at this point is the expansion into non-traditional retail areas, such as advertising and fintech. Walmart has built its success on being a ‘local’ store for US customers. Those customers are returning to those stores as Walmart and others of its ilk redefine retail. All eyes now turn to Target’s upcoming quarterly report for comparison.

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