Why Walmart is on the lookout for future progress past retail

A woman wearing a face mask walks past a sign informing customers that face coverings are required outside a Walmart store in Washington, DC on July 15, 2020.

Andrew Caballero-Reynolds | AFP | Getty Images

Walmart wants to unlock what it sees as its greatest asset: its reach.

Every week 150 million customers visit the stores, the website and the app. The company doesn’t just want to sell groceries, clothing, and other items. The company wants to look for new business opportunities, from increasing its ad sales to becoming a major healthcare provider. With the strategy, Walmart acknowledges a difficult reality: retail may not be enough to fuel its future.

On Thursday, those in charge of the retail giant spoke on a virtual investor day outlining a plan to keep momentum going as some coronavirus-related tailwinds subside and online sales swell.

Doug McMillon, CEO of Walmart, said the discounter will bring together various services customers want, from issuing a credit or debit card to dropping groceries on their doorstep. It will also increase investments to meet customers’ changing shopping habits, such as: Take automation, for example, which helps keep pace with the high volume of roadside pick-up orders.

“We feel encouraged and are now moving faster and more aggressively,” he said. “We are scaling new functions and companies and designing them so that they are mutually reinforcing.”

A new playbook

With the move, the big box retailer is taking a side from retailers like Apple and Amazon who have built an ecosystem of products and services to deepen loyalty and attract more customer wallets. Amazon Web Services was the profit engine of its parent company, helping the e-commerce giant offset the challenging economics of selling items that it has to pick, pack, and ship.

It’s a different Amazon strategy too. This fall, Walmart + was launched, a subscription-based service with benefits such as free shipping and unlimited home grocery deliveries. The service costs $ 98 per year or $ 12.95 per month.

However, Walmart is skeptical when it unveils the new game book. Despite a robust Christmas season and a surge in sales due to economic reviews, it fell short of earnings estimates for the fourth quarter. The results and the forecast of sales reductions in the coming year led to a sell-off. Walmart shares closed 6.48% on Thursday to $ 137.66. The market value is now $ 389.48 billion. During the fiscal year, Walmart increased its sales by $ 35 billion, but higher sales alone don’t translate into higher profits.

Large investments are required to remain competitive. Walmart plans to spend around $ 14 billion in the coming year to improve the supply chain and improve automation, said the company’s CFO Brett Biggs. That’s higher than the typical rate of $ 10 to 11 billion, he said. These improvements are likely to make online sales more efficient and profitable.

Still, McMillon sees an opportunity for Walmart to capitalize on its assets – including its 4,700+ US locations. For example, the company can turn store TV and till screens into advertising opportunities, use its large parking lots to support health clinics that have opened in parts of the country, and promote online merchandise through TikTok live streaming events.

“This is the right time to make these investments,” he said. “The strategy, the team and the skills are there. We know where the customer is going. We have momentum and our balance sheet is strong.”

Stay a few steps ahead

Walmart recently rebranded its advertising business, telling CNBC it plans to grow that business more than ten-fold over the next five years. It has opened 20 clinics with cheaper medical services like annual doctor’s offices, dental checkups, and therapy appointments – with plans for more. With the investment company Ribbit Capital, a fintech start-up is launched to offer its customers and employees unique, affordable financial products.

McMillon said the company needs to be a few steps ahead, especially given the rapid pace of change in retail. The pandemic has profoundly changed the way some customers shop by fast-forwarding many of the trends that Walmart was preparing for, according to McMillion.

“People will continue to want to shop in compelling stores in the future, but there will be more and more instances where they prefer to pick up an order or have it delivered,” he said.

“Some customers will at some point allow and pay us to replenish them in their homes with the items they routinely buy,” he said. “For an increasing number of customers, Walmart is seen more as a service. Customers will see us as the dealer who fulfills their wants and needs, but in a way that takes less time and effort.”

That is why it is investing in converting its stores into mini-warehouses, which use robots and staff to quickly complete online orders for delivery or roadside collection. This, in turn, will help attract more members to Walmart’s subscription service Walmart +, as home delivery is a major reason customers sign up, he said.

McMillon added that Walmart is letting go of some areas while investing in others. He said it will continue to divest markets and companies, which will allow it to focus on areas with greater growth potential.

Correction: In a previous version, the number of visitors Walmart receives was incorrectly reported.

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