RETAILER DEEP DIVE
Walmart
Walmart added more than 200 Supercenters annually. The peak occurred in 2006, when 276 Supercenters were added and Walmart’s cap ex budget was $15.7 billion. In recent years, the number of Supercenters has remained flat as Walmart shifted its cap ex budget to areas that improve efficiency and technology. For example, the company is currently doing about 1.5 million deliveries each week from stores, a seven-fold increase from the prior year, according to John Furner, president and CEO of Walmart U.S. However, to make money in digital grocery, Walmart and other retailers are racing to deploy automated solutions that improve picking processes. Walmart is betting on a concept called “market fulfillment centers,” or MFCs, which are capable of storing and picking refrigerated and ambient items. “Market fulfillment centers make the [picking] process significantly faster and more profitable,” Furner explained. “They move a significant amount of the picking off the sales floor, allowing us to do more within the box. We’re now moving to scale these locations, and we expect to have over 100 of these within the next couple of years. And in some stores, we’ll carve out existing space for them; and at others, we’ll add on; and in some cases, we’ll build stand-alone units.” In addition to MFCs, which are referred to by others in the industry as micro-fulfillment centers, Walmart plans to invest in conventional distribution centers and e-commerce fulfillment centers, but didn’t elaborate on what portion of its resurgent cap ex budget would be allocated to those areas.
Market fulfillment centers make the [picking] process significantly faster and more profitable. They move a significant amount of the picking off the sales floor, allowing us to do more within the box." —John Furner, President and CEO, Walmart U.S.
Becoming Amazon
Listening to Walmart executives talk about future growth opportunities and even use the word “flywheel” is a lot like listening to Amazon. Walmart is focused on providing a high-quality experience for those who join its Walmart+ membership program, and McMillon said that the retailer plans to enhance the offering of benefits over time. The company is intent on expanding its marketplace business by bringing more sellers onto its platform, and plans to make money offering Amazon-like “fulfilled by” and other seller services such as the Walmart Connect advertising platform. 40
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“Five years from now, we expect to be well within the top 10 advertising platforms in the U.S., ahead of big players like Hearst, Fox and Twitter,” noted Furner. Another big alternative opportunity, according to McMillon, that is part of the shift in philosophy to make money in ways other than the sale of products involves data monetization. “Data is obviously really valuable, and we’ve got a history of giving our data away to suppliers,” McMillon said. Walmart did so because it helped improve in stock, and it also empowered suppliers to develop sales-generating initiatives, since they weren’t being charged for access to data. “Some portions of our data will continue to be free because we need [suppliers’] help serving our mutual customers, but there are other aspects of our data that are really valuable and can be put to work in ways that we haven’t before. The concept of building digital products that we can use internally and also monetize outside is a really exciting prospect.”
Day One at Walmart
Before Amazon founder and CEO Jeff Bezos used the phrase “day one” in annual letters to shareholders to reinforce the company’s startup mentality, employing a day-one mindset was a Walmart thing. Specifically, it was Walmart founder Sam Walton’s thing. He had a knack for disrupting the company’s operations before competitors could. Each of Walton’s successors, from David Glass to Lee Scott and Mike Duke, maintained a similar view, but no one expressed it as forcefully as McMillon, who sees opportunity in areas that could have Walmart looking like a very different company within the decade. “I’ve been a part of Walmart for more than 30 years now, and I can’t remember a time when there was so much exciting change happening inside our company,” McMillon said. “In the 1990s, I remember [Glass] telling us repeatedly that the company was just getting started. Every time I’d hear him say it, I would think, really? We were already large by then, and so much had already happened.” Today, McMillon shares a similar message of future opportunity, if Walmart can become more aggressive, go faster to capitalize on its financial strength and momentum, and drive sales and profits in more expansive ways. “We have the talent, the culture and the assets to thrive in the next generation of retail and to invent it,” McMillon asserted. “We’re building a new customer-centric business model.”