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Walmart’s Store No. 8 incubator has announced the launch of its second portfolio company, Spatial&. It will focus on the opportunities to create new virtual commerce (V-commerce) experiences.

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As Walmart launches another online-only, or digitally-native brand (DNVB), we look at how this aligns with its broader ecommerce strategy.

Home furnishings range featuring over 650 products

MoDRN is the retailer’s newest addition to its growing collection of digitally native brands. The home furnishings brand, comprising of three collections - Retro Glam, Refined Industrial and Scandinavian Minimal – features almost 650 products. The range, which incorporates high quality materials, has been developed to replicate the elevated look and feel typically associated with specialty stores.

Source: Walmart

Walmart’s first digitally-native brand

This follows on from the launch of Allswell last year, Walmart’s first digitally-native brand. Comprising of a range of mattresses and bedding, the collection is sold exclusively on AllswellHome.com. The mattress-in-a-box concept competes with several online specialists which have grown at pace over recent years. The website has the look and feel of an independent brand, with no reference to its relationship with Walmart. The company was set up as a separate unit, led by president, Arlyn Davich, with a focus on ensuring a design-centric approach.

Reaching new customer groups

Walmart has gained expertise with digitally-native brands following its acquisition of Bonobos in 2017. The menswear retailer’s former CEO, Andy Dunn, was appointed at the time to lead Walmart’s operations in this area. While Bonobos has been able to optimise Walmart’s scale, its has remained independent, enabling Walmart to learn how to build and scale-up digitally native brands, the role of digital marketing and storytelling and how to reach new customer groups which would not typically be Walmart customers.

Elevating the online customer experience

The retailer has also acquired ModCloth and Eloquii to add to its online-only brands. These brands, along with in-house developed ranges such as MoDRN and Allswell are an important part of Walmart’s future. They help to create a point of difference, will elevate its focus on the customer experience across all its online properties and enable it reach to younger shoppers, especially millennials and digital natives.

Improving the economics of ecommerce

These brands are also an important element of improving the economics of ecommerce. Vertical brands typically have much higher gross margins and deliver to the bottom line as they scale up. They are also data rich as everything is undertaken in-house, enabling the offer to be continually refined and improved. Further acquisitions are likely in the future as Walmart builds-out is repertoire of brands, supporting its longer-term vision for its ecommerce business.

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With the US online grocery channel forecast to grow to just under $60bn by 2023, retailers are focused on improving the efficiency of their operations as they scale up. We look at some of the initiatives underway in this area.

Focusing on picking and delivery efficiencies

While offering grocery ecommerce service can build customer loyalty and incrementality, it can also dilute profitability. This is especially the case in the early days as businesses focus on scaling up at pace. Retailers are mainly focused on tackling the two major cost elements; order picking and delivery. In both cases, new technologies are being applied. Several new models are being tested, and while it’s not yet clear which will prevail, it’s driving a high level of innovation within the market.

Retailers are also weighing up which capabilities should be developed in-house, and which elements should be outsourced. As ecommerce is only one element of larger digital transformation projects that many are currently tackling, they also must consider where relying on external expertise can create the space to help them achieve broader strategic goals.

 

1. Strategic partnerships to optimise new technologies

Kroger has formed a strategic partnership with UK-based Ocado to optimise its technology solutions and significant expertise in the channel. Through its robotic Customer Fulfillment Centres (CFC), Ocado believes that it can significantly lower the time and cost to pick an order, versus store-based picking. The first CFC will be located north of Cincinnati, where Kroger is based. The retailer has significant density in this area, including in the Indianapolis, Columbus and Louisville markets. Up to 20 similar facilities could be developed over the long-term.

2. Hyperlocal, automated fulfillment

Robotic picking solutions are also being tested at store level. Both Ahold Delhaize and Albertsons have partnered with Takeoff Technologies while Walmart is working with Alert Innovation to test hyperlocal, automated fulfillment systems. Part of the goal is to identify a model which can be scaled up, while also utilising stores as a competitive, and cost, advantage. Takeoff Technologies is aiming to develop hyperlocal fulfilment centres that have one-eighth the footprint of a typical supermarket due to innovative robotics and compact vertical spaces. The compact nature of the solution means that retailers can repurpose existing stores by turning them into micro distribution centres.

Source: Takeoff

3. Working with third-party providers to scale-up at pace

Several retailers have chosen to work with partners for either order picking, delivery or both. Instacart has been the primary partner of choice for many retailers. This has enabled them to optimise its crowd-sourced, on-demand platform to enter the channel at lower cost and with the ability to scale-up at pace. Retailers have also been able to tap into the broad delivery ecosystem which continues to grow and develop in the US, enabling them to create hybrid solutions where they continue to manage the order picking. Both Target and HEB have made acquisitions in this space, helping them to gain new capabilities that further support their efficiency drives. Last year, Walmart started testing its own crowd-sourced platform, Spark Delivery.

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The high end membership-only retail club chain is to open 40 more stores in mainland China by end of 2019.

High confidence in the market

Since the first Sam’s Club opened in Shenzhen in 1996, the company now has 19 stores covering different geographic regions of China: Beijing, Shanghai, Shenzhen, Guangzhou, Fuzhou, Dalian, Hangzhou, Suzhou, Wuhan, Changzhou, Zhuhai, Tianjin, Xiamen, Nanjing and Changsha.

The company plans to open new stores to complement current stores. Currently there is only one Sam’s Club in Shanghai, which was opened eight years ago in Pudong. A second one will shortly be launched in Shanghai’s Qinpu area. Meanwhile, the retailer is also negotiating for five more locations in Shanghai.

Continuous investment is the best way to prove our confidence in the Chinese market", president of Sam's Club China, Andrew Miles, commented.

Sam's Club China
Source: IGD Research

Going from strength to strength

Sam’s Club has a strong performance in China. Its revenue is up by +8%YoY in 2018.

It has 2 million members in mainland China. It opened online store with direct delivery service in 2010. Same-day-delivery service for chilled and frozen food was launched in 2012 in main cities. In 2014, Sam’s Club App was launched after forming a strategic partnership with Tencent, opening the gateway of reaching WeChat’s one billion monthly active users. Recently, it started testing one-hour delivery service in Shengzhen.

Because of these progressive initiatives on service and user experience, Sam’s Club saw a 300% online growth since 2016. It is estimated that online sales will account for 13 – 15% of total revenue by end of this year when the 40 more stores are opened.

Membership of Sam’s Club China costs US$36 per annum, raised from US$23 in 2016. Premium memberships available at US$100 per year. An average Sam’s Club provides at least 1,500 parking spaces for its members, with a shopping area of 20,000 square meters.

 

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