As part of its annual strategic update, Walmart has outlined plans to accelerate its digital investments, which over time, will fundamentally change the nature of the company.
Momentum in the core business enables an offensive strategy
Having completed two major ecommerce related deals recently, including the acquisition of Jet.com and taking an increased stake in JD.com in China as part of a broader strategic relationship, Walmart’s ecommerce plans were a central element its strategic update. With the retailer seeing solid momentum in both its domestic and international businesses, and the foundational elements of its ecommerce operations now in place, it can play a more offensive role and aggressively lead the change which the industry is experiencing. Technology is having a major impact on Walmart, and retail in general, transforming how it operates and the speed which it moves at, and over time will see the retailer evolve to look more like a technology and ecommerce business.
Smarter online baskets will feed the productivity loop and power EDLP 2.0
The acquisition of Jet.com brings new capabilities to Walmart. In a joint presentation with Jet.com’s founder, and CEO, Marc Lore, Walmart’s President and CEO, Doug McMillon, spoke about how Jet.com’s technology will enable smart baskets, feed Walmart’s productivity loop, and bring transparency on costs to customers as they shop, which will ultimately influence what they purchase. The role of basket economics and the ability of shoppers to lower system costs was described as EDLP 2.0 by McMillon. The deal will also benefit Jet.com. Lore is excited by the opportunity to leverage Walmart’s assets, including its sourcing capabilities, product offer and store network, particularly given that 70% to 80% of shipping costs are usually accounted for by last mile delivery.
Scaling up at a faster pace in China through JD.com partnership
Beyond the US, Walmart is aiming to accelerate its ecommerce progress across a number of international markets including in China. The strategic partnership with JD.com enables the retailer to deliver a seamless experience for its shoppers in this major market, to scale up its presence more quickly than it could have achieved on its own, and more profitably than investing in Yihaodian, therefore easing some short-term earnings pressures.
Slowing new store growth in favour of remodels
The impact of the accelerated investment in ecommerce, which is underpinned by the momentum in its stores business can be seen in its capital expenditure plans. Next year the retailer is planning on opening only 59 new stores and clubs in the US, compared to 141 this year and 230 in 2015. Internationally the plan is to develop 190 to 220 new stores, broadly in line with recent years. The most significant slowdown is in the US where the retailer will shift its focus to remodels, with 500 planned next year, along with extending grocery ecommerce to 500 additional stores, building on the roll-out to 600 stores this year. This shift of focus will see comp store sales and ecommerce account for the majority of the retailer’s growth over the next two years, compared to recent years where new space has made the biggest contribution.
Three key takeouts for suppliers
- Accelerated investment in ecommerce, including grocery ecommerce, means that suppliers need to have a firm plan to trade in this channel with Walmart
- EDLC continues to underpin Walmart’s EDLP approach, and it’s made major progress on the cost of goods sold through its cost analytics approach in Canada; with this now being rolled-out to other international markets it’s important to be familiar with the process
- Store remodels are driving growth for Walmart and comp store sales will account for a higher proportion of growth than new space; merchandising innovation and newness is expected to be a key element of driving comp store sales and Walmart is looking to suppliers to bring this to its buying teams
You can hear from Walmart at IGD's Online & Digital Summit
Senior director of international e-commerce at Walmart, Saeed Anslow, will be among the speakers at the headline event. You can meet Walmart during the event at the networking station. Get your ticket here.
|Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on Walmart globally. He is also responsible for shaping IGD's research program across North America. Contact Stewart at [email protected] for further insight on the Walmart's future plans and strategic outlook.