Unlocking the Future of Retail: A Closer Look at Walmart's Omnichannel Strategy
Exploring Walmart's strategic plan to dominate the retail industry by bolstering its already impressive omnichannel capabilities.
In the world of corporate giants, Walmart reigns supreme in retail. Recently, the pride of Bentonville shared its grand vision for the future with investors. Their game plan is savvy, strategic, and grounded in reality. Walmart aims to tackle three core challenges:
Provide Omnichannel retailing that caters to both online and brick-and-mortar shoppers.
Increase operating margins through a blend of productivity and experimental businesses.
Enhance their ROI by sticking to disciplined capital and operating margin improvements.
That's a lot to digest, but let's start with the Omnichannel stuff, shall we?
What is Omnichannel retailing?
Omnichannel is somewhat of a buzzword, but that doesn't mean it's not the future of retail.
Omnichannel retailing is an approach to shopping that integrates online and offline channels to provide a unified and personalized customer experience. With omnichannel retailing, customers can browse, purchase, and return products through various channels, including websites, mobile apps, social media platforms, and physical stores.
By leveraging technology and data, omnichannel retailing allows retailers to gain valuable insights into customer behavior and preferences, which can be used to optimize their marketing and sales strategies.
Omnichannel Retailing at Walmart
This transformation began with the merging of their e-commerce and store teams into one team in 2020, led by the Chief Operating Officer. It resulted in various changes, such as the launch of Walmart+; allowing for an end-to-end organization that spans production to delivery to the customer.
Walmart has seen significant growth in its pickup and delivery business, fulfilling over 600 million online orders and executing over 200 million curbside pickups in the last year, which has led to increased customer loyalty and spending, with online pickup and delivery customers shopping more frequently across all channels and spending $1,000 more per year than traditional customers.
Omnichannel is central to Walmart's Growth Aims.
Walmart already has impressive growth statistics. Supported by the pandemic, the company achieved 6% revenue growth over the past five years, with 8% growth over the last three years.
Management aims to grow at about 4% over time, which is a full basis point higher than in pre-pandemic times.
Their investments in people, price, e-commerce, and high-value technology capabilities have allowed them to scale at lower costs and leverage their supply chain, retail ecosystem, and stores to fulfill and activate local delivery networks to reach a run rate of $82 billion in e-commerce and put them on the path to reach $100 billion soon.
Omnichannel involves both owned and network inventory.
Walmart's e-commerce selection has grown significantly, with over 400 million SKUs online, including 200 million in apparel and 60 million for the home.
Advertising on Walmart's Marketplace, the company's third-party supported commerce portal, generates nearly $3 billion a year.
Seller accounts have also increased by 50% compared to the previous year.
Management is betting supply chain automation will fuel efficiency gains.
The goal is to improve item location, accuracy, in-stock levels, cost, and delivery speed, ultimately leading to improved profitability.
By the end of fiscal year '26, around 65% of Walmart's stores and 55% of fulfillment center volume will be serviced by automation, and the company expects unit cost averages to improve by approximately 20%.
Perhaps the most impressive is its perishable distribution centers. The state-of-the-art automated centers can receive, store, and retrieve perishable merchandise from an 80-foot-tall storage system that operates at 2x the speed of a normal DC.
CapEx is focused on these efficiency programs
90% of all CapEx will be made through high-return areas, including like e-com, supply chain and store remodels.
CapEx spending neared $17 billion in 2022, an increase of 60% since 2020.
They Said It:
CFO John David Rainey on how omnichannel and new revenue streams underpin the company's growth targets:
You've got these smaller parts of our business that are higher margin, but growing at a much faster rate. And so the simple math is that, that suggests that our margins should go up.
We think there's significant opportunity in a lot of this, but it's sort of twofold. One is the apples-to-apples comparison of the transaction where the pure unit economics are more attractive somewhat because of like what you saw yesterday and the investment in our supply chain. We're able to do this at more attractive rates.
But at the same point in time, there's a growth opportunity there. And things like delivering to customers. As you have more growth in your network, you're delivering more packages to a cul de sac you've got density improvements in the economics around that.
We think that the value proposition to customers is very compelling, and we're lean in to the areas following what we hear from customers. And so we think there's a big opportunity there.
And this -- to John's point, sort of it's an ecosystem of value drivers. The more sellers we have in the marketplace, the more assortment that we have, the more eyeballs are coming to our marketplace. The more eyeballs coming to our marketplace, the more advertisers want to spend dollars. All of this works together, and we think that we've got a strong foundation to help grow this.