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What:

How an old-fashioned retailer can continue to dominate in the age of e-commerce.

Why is it important:

Walmart’s approach and latest moves should inspire department stores.

Founded by Sam Walton in 1962, Walmart now operates 11,496 stores in 27 countries under 56 different names, with 66% of its sales coming from operations in the U.S. It is the world's largest company by revenue, with $514 billion (€437 bn) in 2019 and the largest private employer in the world with 2.2 million employees. To give an idea of the size of this company, the total size of the department store market in the world (listed companies only) is estimated, according to sources, between €450 billion and €550 billion.

Walmart has stuck over the decades to the same model created by Walton -operate with the lowest costs and sell at the cheapest prices- and the company has set up a massive network of rural and suburban supercentres across the U.S. Some 90% of Americans now live within ten miles of one of their stores, and nearly four out of five of them actually shopped at Walmart last year.

But the low prices and broad range that have differentiated Walmart so far seem less of an advantage nowadays as Amazon competes not only on price and range, but also mainly on convenience. Amazon and Walmart have lately been increasingly competing for the same customers, but Walmart’s main differentiator online, however, may be its stores.

No one in the U.S. took a greater advantage of the lockdown than big-box retailers and Walmart has been a pandemic winner with U.S. e-commerce sales which have almost doubled (+97%) and drove a 6% year-on-year increase, to $140 billion.  Amid the Covid carnage, Walmart generated a net income of $6.48 billion in the three months to the end of July, up from $3.61 billion in the same period one year earlier.

While those strong numbers contrast to the weakness of department stores and clothing chains, Walmart seem finally to have figured out how to compete against Amazon, and how to keep thriving in the age of e-commerce, thanks to a full omnichannel approach, a push in fashion, and a striking attempt to integrate a content-oriented social media platform.

Moving fast to a fully omnichannel model

Merging store and online structures

Walmart announced in February 2020 that they will gradually merge their digital and in-store buying teams into a single merchandising organisation, which will be divided into apparel, consumables, entertainment, food, hardlines and home. The company has long operated with different e-commerce and store teams, originally split between Arkansas (Bentonville) and California, and has recently started to slowly integrate the two. Last year the retailer already combined its online and store supply chains and finance teams.

While the change seems in the first place as the occasion for Walmart to reduce the siloed effect of conflict between the units, to streamline costs and to increase profits of its e-commerce business, it could also become an important part of the company’s strategy to build on the success of its online grocery business to beat rival Amazon. Most of the company’s 4 700 U.S. locations now offer a service that lets shoppers buy online and pickup orders at store parking lots. Around 1 600 stores offer online grocery delivery, and Walmart executives say they want to expand those online services to include more profitable nongrocery items, which would make them more profitable.

The move to unify buying across different channels shows that companies are still learning how to best manage those channels on the backend, and Walmart recently revealed they will soon bring together their grocery and general merchandise apps for the back-office organisation to better reflect the customer's view of Walmart.

One big step towards omnichannel: Walmart+

In another much anticipated attempt to compete with Amazon, and presented as a way for the customers "to keep more time on their calendars and money in their pockets", Walmart finally introduced Walmart+ in September. Available to customers across the U.S. for $98 a year (or $12.95 a month), the newest membership option offers same-day free delivery for thousands of grocery and household items, an improved in-store experience through the app, as well as fuel discounts at nearly 2 000 gas stations. The service is cheaper than the $119 charged by Amazon for Prime but Walmart+ has a $35 minimum order while Prime has none.

A late comer to digital, Walmart basically gave a 20-year head start to Amazon which had 112 million Prime members in the U.S. before the pandemic (153 million expected in 2022), with sales from e-commerce that are about 110 billion of online sales (compared to 38 billion expected by Walmart for online sales this year). But the first reports pointed out that 36 million Americans (11%) have already subscribed to the $98-a-year programme in less than a month, and a survey from UBS shows that 57% of Walmart shoppers indicated they were "very likely" or "fairly likely" to sign up for Walmart+. Another one from Digital Commerce 360 shows that roughly 48% of consumers who shop online at least weekly say they are "somewhat or very likely" to join Walmart+.

Walmart sales have soared during the pandemic and a big driver of those sales are groceries, which customers can either order online and collect from the Walmart parking lot, or now have delivered directly to their home for time-saving convenience with Walmart+. At the end of September, Walmart also announced that they will roll out a new concept to 200 stores this year and to 1 000 others next year. Introduced by the company as aiming to "help customers better navigate the omni-shopping experience", the remodelled store design is actually mostly meant to encourage customers to download and use the Walmart app to navigate in stores for a complete omnichannel experience.

IADS note: by making online shopping converge with their physical locations, Walmart is transforming their stores, long viewed as expensive and outdated assets, into local distribution hubs that are now powering digital and in-person shopping alike, and which represent a critical advantage over Amazon. With their prime inner-city locations and strong client base of locals, department stores have precious assets they can fully activate to become prominent local providers of goods and services. An omnichannel approach would also be the opportunity for them to streamline the backend of channels, for a unified and simplified organisational structure.

Expanding to upscale apparel and beyond to a digital market place

The next fashion destination?

"Through our ongoing strategy of expanding our assortment for our customers, we’ve shown that we’re serious about establishing Walmart as a fashion destination."

Although Walmart was eclipsed in the segment early this year by Amazon for the first time (more than 70% of U.S. apparel shoppers bought clothing or footwear on Amazon over the past 12 months, +10% over last year), it remains the second most likely place U.S. consumers visit for apparel and footwear. And the retail giant has built over the past years a solid offer of fashion brands through partnership, acquisition, and expansion, that reveal the company’s ambitious goal to become a prominent fashion destination.

In recent years, Walmart bought several online apparel favourites, including Eloquii, Moosejaw, ModCloth (resold in the meantime) and Bonobos. In 2019, Walmart has brought the Scoop brand back as a private fashion apparel line. This year it teamed up with resale site ThredUp and, most recently, launched "Free Assembly," a men's and women's apparel brand developed by J. Crew and Bonobos alum Dwight Fenton. All of Walmart's acquired brands are private labels now.

While specialty retailers and department stores were closed during the pandemic, Walmart, designated as an essential retailer, reportedly saw positive trends in apparel sales. Department stores were already losing foot traffic to big-box retailers before the pandemic. Apparel brands are less able to choose where they sell and might sell at supermarkets. Walmart has now an enriched offer of more upscale private labels. For those reasons, it is possible that full-price apparel buyers are now buying from Walmart on the occasion of their grocery shopping trip as they favour locations that sell necessities. And there is a probability they keep the same buying habit once the pandemic is over, to the detriment of department stores.

Accelerating as a marketplace with Shopify

In June, Walmart announced they were joining forces with Shopify, the all-in-one commerce platform used by more than 1 million businesses worldwide, to open the Walmart Marketplace to their sellers. Walmart launched its marketplace site in 2009, but the progress was slow as the retailer was then mainly focused on its main brick-and-mortar business, and took time to identify the risk arising with Amazon. It started to change when Doug McMillon was appointed CEO in 2014, and then accelerated when Walmart acquired online start-up Jet.com in 2016 and put the start-up’s founder Marc Lore in charge of Walmart’s U.S. e-commerce division.

The company’s marketplace site, which already offers more than 75 million products, grew at a faster pace than Walmart’s overall web business in Q1, and third-party sales are more profitable. The new collaboration with Shopify is Walmart’s latest attempt to expand the scale and profitability of its $21.5 billion U.S. e-commerce business, which is now gaining substantial ground on market leader Amazon.com.

According to Jeff Clementz, VP of Walmart Marketplace, there are many Shopify sellers who were already on Walmart.com, but the company has not penetrated their base to the extent possible and he sees there a tremendous opportunity. For Satish Kanwar, Shopify’s vice president of product, few companies in the world match the sheer size and scale of Walmart, and the deal opens the door for small and medium-sized businesses to access the 120 million customers who visit Walmart.com every month. The partnership sounds like a win-win deal for both parties, and a fast and easy way for Walmart to keep expanding its online presence and visibility.

IADS note: Walmart has been using its unique scale and deep anchoring in American households to keep expanding both its offer and presence, in-store and online. The brick-and-mortar suburban mass merchandiser is turning into an omnichannel platform that sells a broader range of products and services to a broader audience. Is every Walmart supercentre then not about to become a department store? And what if department stores were then getting back to basics – providing selected essentials to locals – to have their regular clients back and then grow a new community of customers?

Looking far ahead with TikTok

In August, labelling social media app TikTok as a threat to the privacy of Americans users, President Trump ordered Chinese parent company ByteDance to divest its U.S. business. After weeks of political drama and while the details are still under discussion, Oracle and Walmart will partner to take a controlling minority stake in a new U.S. company that will operate TikTok (with respectively a 12.5% and 7.5% stake). Rather unexpectedly, that move from the retailer gives hints about its ambition to shift Walmart’s model and renew its approach to retail.

Introduced as a way to "provide Walmart with an important way for us to expand our reach and serve omnichannel customers as well as grow our third-party marketplace, fulfilment and advertising businesses", the plan is in the first place a way for the retailer to approach a much younger audience, but it is also a unique opportunity to engage directly with a community of content creators.

ByteDance actually began testing e-commerce features on Douyin (the app’s Chinese version) in 2018 and has recently rolled out a "Shop Now" button on TikTok that redirects users to shopping sites. Walmart could of course use data from the millions of users to sell products to the TikTok audience, but they could more broadly engage with the users while they are creating content or sharing viral videos, and integrate advertising directly into the user generated content. And that possibility puts it ahead of rival Amazon.

Takeaways from the Walmart case

"Our e-commerce strategy has always been about growth, testing and learning, and most importantly: giving our customers what they want, when and how they want it."

Although the strength of Walmart’s domestic business should not offset some difficulties overseas (the company has just sold ASDA supermarkets in the UK), the retail giant seems to finally have found the way to gain back some of the ground lost to Amazon and to reinvent itself for the future. Most of that critical shift from an old-fashioned model has been made possible by a constant test and learn approach, ongoing experimentation and tests that are all driven by a unique customer-centered approach.

But Walmart’s major push into digital is only part of the company’s strategy to engage more often with more customers. Experiential marketing through their locations remains a critical part of the company’s relationship with their core client base. Before the pandemic, the retail giant used parking lot space as "town centers" and for musical events for instance. It has recently partnered with the Tribeca Film Festival to repurpose 160 car parks as drive-in movie venues, and will now be hosting more than 140 football and Halloween contact-free family-friendly events outside stores through the Holiday Season.

Interestingly, Walmart keeps the store and its community at the core of their renewed omnichannel approach. Department stores generally operate on a different scale and with a different business model, but we should consider how much local remains critical to global operators. And we may have here a unique opportunity to take advantage of our own model to reshape the many ways we can engage with our client base. No matter if it is in store or online, a tight relationship with our customers remains the best way to learn what they want, when and how they want it.

"People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information"- Sam Walton.

Credits: IADS (Renaud Pillon)