Walmart’s strategy is about making “bricks and clicks” work better together, with a recent emphasis on its existing footprint of 3,500+ supercenters. 90% of Americans already live within 10 miles of a Walmart, enabling more efficient delivery and pickup as well as new business lines like health centers (see below).

After seeing that half of its ecommerce growth was stemming from grocery pickup and delivery from stores, Walmart invested $11B last year to revamp its stores.

In late Feb 2020, it was reported that Walmart was combining its online and store product-buying functions under one omnichannel Merchandising team. Products purchased for the stores will be approved for the online site, and buyers will be able to place orders for both. The move is expected to help align pricing online and in stores for a more consistent customer experience, and facilitate the use of the store footprint for delivery and pickup. Walmart is looking to increase the number of products available online, and grow the average basket served from its stores.

The move follows the creation of an omnichannel customer organization in 2018 and the integration of supply chain and finance teams for ecommerce and store in 2019. This phased transition towards greater integration is intended to resolve the longstanding internal culture clash between ecommerce and brick-and-mortar teams.

Walmart has been undergoing a rollout of pickup and delivery services across the US. Of the 4,700+ Walmart-branded US locations, it has 3,200 stores with curbside pickup and plans to expand to another 500 locations in 2020. 33% of online sales are projected to be fulfilled through curbside pickup this year. Walmart has also been deploying 1,700 in-store pickup towers that let shoppers pick up online orders without needing to interact with a human. 1,600 stores (covering more than half the US population) can also support same-day delivery, with plans to roll out to half of all stores in 2020.

Walmart leverages its customer volume and scale to offer pickup services for free, unlike other grocery retailers. It has found that pickup and delivery customers tend to spend more with Walmart. One analyst estimated $125 in average spend per grocery pickup vs. $50 for in-store shoppers. Spending also increases over time as a customer uses the service more. 40-60% of curbside pickup sales come from new Walmart customers, who might otherwise have sought to avoid crowds and hard-to-navigate supercenters. Pickup customers also tend to be more active advocates rather than just users.

On the delivery front, Walmart last year began upgrading its standard free 2-day delivery for ecommerce orders to next-day service with a $35 order minimum. It can reach 75% of the US within one day, though it is still growing product availability under the program. It has a program with 3rd-party delivery partners, a refreshed pilot with Walmart-employed associate drivers, and the Spark Delivery platform for crowdsourced drivers (in 31 states and serving 13K+ deliveries per week). Spark is designed to be a multi-tenant platform that would serve Walmart’s other businesses such as Sam’s Club.

In Oct 2019, Walmart launched InHome Delivery availability to 1M customers in Pittsburgh, Kansas City (Missouri/Kansas), and Vero Beach (Florida). For $49.95 upfront for installation of a smart lock or garage opener and a $19.95 monthly fee, tenured Walmart employees wearing body cameras will deliver groceries (with a $30 minimum) directly to customers’ fridges. The InHome program also offers customers the convenience of “no-box” deliveries and returns.

It has also been experimenting with autonomous vehicles in the hopes of bringing down the cost of delivery. It has a pilot with startup Gatik on middle-mile transport between stores/warehouses; and pilots with Nuro, Ford/Postmates, Udelv/Baidu, and Waymo for last-mile grocery delivery to customers.

Walmart has lately been expanding its distribution network by going both bigger and smaller. It is adding capacity at its stores, for forward-deployed inventory that can be delivered same-day as well as warehousing for 3rd-party merchants. Walmart is also testing a “micro-fulfillment center” concept in urban areas, near existing stores and customers. In Jul 2019, it opened a 40,000 sq. ft. “Walmart Pickup Point” outside Chicago. The location doesn’t allow customers to enter but rather focuses exclusively on fulfilling online orders and presenting them to customers for pickup. Walmart is also experimenting with a floor-to-ceiling robotic picking system called Alphabot to automate micro-fulfillment centers as well as store backrooms (see below).

Walmart is by far the leading grocery retailer, both online and offline, with grocery comprising 56% of its US revenue. It is well-positioned to capitalize on broader growth in online grocery – the fastest-growing ecommerce category, projected to reach $38B by 2023. Online grocery is expected to grow from 4% of all grocery spend to 20% by 2025, numbers that will likely be accelerated by the COVID-19 environment.

In its drive towards profitability, Walmart has lately been focused on a more profitable mix of products in the basket served from its stores. Grocery is complementary to Walmart’s larger retail business, with pickup and delivery customers spending more. Online grocery also helps attract younger higher-income shoppers, 65% of whom also have an Amazon Prime membership. Industry watchers expect this will have a ripple effect into higher-margin categories.

Walmart has been working to improve quality and assortment in grocery for the past few years, and is revamping produce aisles to become a draw for stores. It is making moves on the private-label front, where Walmart has had brands since 1983 (84% of shoppers buy private-label brands and it has 18 private-label brands each with $1B+ in sales). Walmart has been working to revamp its assortment with more premium products in categories like ice cream, home decor and fashion, as well as direct-to-consumer (DTC) brands like SmileDirect (Jan 2020). It has also opened meat and dairy plants to up its private-label quality.

In another move to heighten the synergies between grocery and the rest of its business, it recently integrated Walmart Grocery into its main Walmart app and website. It is hoping to see lift from that effort – 50% of traffic on Walmart.com is shopping in grocery. The combination doesn’t just help Walmart with customer pull – it also helps with more efficient marketing spend as well as data and advertising (see below).

Walmart has recently been signaling a greater emphasis on customer loyalty. In Sep 2019, it launched a credit card and store card offering 5% back on online purchases (mirroring Amazon’s cards). Then, a recent report by Vox-owned Recode, later confirmed by RetailWire, revealed Walmart’s plans to begin testing a paid membership program called Walmart+ as soon as this month (Mar 2020). (This timeline may be delayed given the strain of the ongoing COVID-19 crisis on Walmart’s delivery infrastructure, which has caused it to put NextDay delivery on hold.)

Despite Walmart having 35+ years of experience with the Sam’s Club membership program, it has gone back and forth on the membership model on the Walmart-branded side:

The Walmart+ effort has been under active development for at least 18 months and is widely presumed to be competitive with Amazon’s Prime membership (despite Walmart executives’ desire to avoid a direct comparison). Details are scarce at this point, but its foundation is expected to be the existing Delivery Unlimited program launched in Jun 2019.

There’s a strong likelihood that Walmart+ will offer delivery of more than just grocery, given Walmart is looking to use grocery to expand into higher-margin non-grocery items. It has also lately been touting the ability to pick both consumables and general merchandise at stores for pickup and delivery.

The intent of Walmart+ is reportedly to bring a differentiated offering to market with perks that Amazon Prime would find difficult to match, with ties to Walmart’s in-store experience. Other membership benefits could include placing orders via text message, discounts on prescription drugs and fuel, and in-store “Scan & Go” checkout (a feature previously discontinued due to low participation).

Walmart has operated the Walmart Marketplace for 3rd-party sellers since 2009. It had 35,000+ sellers at the end of 2019 – up 2.5x over the past 3 years, though far fewer than the 2M+ active sellers on Amazon Marketplace (see our Nov 11 2019 brief for more on Amazon’s marketplace). Of the 80M SKUs in Walmart’s online catalog, the vast majority are from 3rd-party sellers.

Earlier this month, Walmart began rolling out Walmart Fulfillment Services (WFS), a service for 3rd-party vendors similar to Fulfillment by Amazon. (Seller services alone generate $54B for Amazon.) For a fee, Walmart will handle storage, picking, packing, 2-day delivery (eventually next-day), returns and customer service for items from 3rd-party vendors on Walmart’s ecommerce platform. WFS leverages Walmart’s massive existing delivery infrastructure of stores and warehouses, and also allows it to gain efficiencies by allowing to commingle its own 1st-party inventory with 3rd-party inventory in the same box.

The WFS program is part of Walmart’s strategy to lure more merchants to its platform, especially those without fulfillment capabilities, and grow its assortment online. The pricing of the program, which has no monthly membership fee, is set to be “one of the lowest-priced services on the market” to help with seller profitability. Merchants will be charged a fixed monthly storage fee and fulfillment fee based only on shipping weight. WFS also offers sellers better visibility into inventory, more control over item page content, and enhanced support from Walmart.

Walmart has been aggressive in subsidizing lower prices on items from select 3rd-party sellers, through a “Competitive Price Adjustment” program designed to make it competitive with Amazon.

“FAST unloader” conveyor belts that automatically scan and sort items off delivery trucks, reducing the number of workers needed to unload from 8 to 4, and number of hours to load from 3.5 to 2; expected to be in 2,000+ stores this year

Auto-C floor cleaners (Brain Corp) that scrub store floors, saving a few hours a day in human time; 1,860 have been deployed

Auto-S inventory scanners (Bossa Nova Robotics) that scan store shelves for out-of-stock and out-of-place inventory; expected to be in 1,000+ stores this year

Alphabot (Alert Innovation) floor-to-ceiling robotic system in a store’s backroom that can collect 800 products an hour (10x what a human worker can collect), enabling greater throughput to delivery and pickup vehicles; the system is being tested and will be in 4 stores by the end of this year

Ask Sam voice-activated digital-assistant app for Sam’s Club associates, allowing them to ask questions such as inventory availability/location and work schedules, and also take actions like printing the sign for broccoli; it had answered 1.5M questions as of Jun 2019

AI-powered camera systems (Everseen) with image recognition, deployed at 1,000+ stores to detect checkout scanning errors and theft

Walmart has long offered services to draw customers into its stores – such as restaurants, pharmacies, vision centers, Care Clinics, hair and nail salons, auto care, photos, shipping, wireless services, tax prep, money transfer, check cashing and other financial services. Many of these services are offered through 3rd-party providers, who rent space on store property.

One of its most ambitious efforts of late is the Walmart Health Center – a much larger in-store footprint dedicated to healthcare (10,000 sq. ft. vs. 1,500 sq. ft. in a typical Care Clinic). A Walmart Health Center – there are two centers in Georgia so far – offers primary and urgent care, lab testing, X-rays, and diagnostics, EKG, counseling, dental, optical and hearing services (stores also have a pharmacy on-site). These services are available at low fixed fees – e.g. annual check-up for $30, eye exam for $45, lab tests starting at $10, teeth-cleaning for $25, therapy for $1/minute – without insurance needed. (Walmart also recently opened two drive-thru COVID-19 testing sites in store parking lots, in conjunction with the US Department of Health and Human Services.)

Similarly, Walmart has also been undertaking an expansion of in-store veterinary clinics, with plans to reach 130 by mid-2020. It claims owners can pay 40-60% less for exams, vaccines and treatments. In parallel, Walmart is offering a pet-prescription delivery service through in-store pharmacies.

Walmart has long sold advertising in its stores and web properties, with the digital advertising sold through a unit of WPP (Triad). Over the past couple years, it has brought its digital ad business in-house under Walmart Media Group, with the intent of bringing together its store- and digital-advertising teams. It is looking to build a larger advertising business in competition with Amazon for suppliers’ marketing dollars, with more integrated campaigns in stores and on digital properties. (Amazon currently captures an estimated 70-90% of shopper-marketing dollars and most of its $14B “Other” line is advertising.)

Walmart has been acquiring adtech companies, including startup Polymorph Labs in Apr 2019. In Jan 2020, it launched a self-service ad platform where advertisers can buy sponsored-product and search-results ads on Walmart.com, along with an API so adtech partners can programmatically bid, buy and manage spend. While kinks are still being worked out, advertisers are reportedly enthusiastic about the potential to diversify spend from Amazon. Most of the ad inventory will be Walmart’s own but it will also buy on social media and through adtech partner AppNexus.

Walmart plans to leverage its trove of data from millions of online and credit-card customers (275M+ customers visit Walmart stores and ecommerce sites each week; 15% of store customers pay by credit card). The anonymized shopping data will be used by advertisers for targeting. Before this, customer data had long been kept in-house. Because 87% of sales still happen in brick-and-mortar stores and Walmart has access to both offline and online customers, it can do better attribution across channels than its competitors (35% of in-store customers visit Walmart.com before going to the store).

Walmart is also reportedly exploring the possibility of selling computing power situated at retail locations to drones and autonomous vehicles in need of nearby processing capability. (Walmart needs computing power in-store to process data from robots, sensors, and camera systems; even the smaller Neighborhood Market format might have 100 servers, 10 cooling towers, and 400 GPUs.)

It is reportedly in discussions with telecom companies (including Verizon) to install 5G antennas on store roofs. In addition to the computing opportunity, 5G’s faster speeds, reduced latency and network security could also help support other digital services – such as telemedicine services from remote physicians through Walmart Health Centers.

Walmart reportedly has 1,500+ data scientists on staff as of Jan 2020 and is hiring more to support 100K AI/machine learning projects. The breadth of these projects span areas such as robotics, camera image-recognition, personalization, product recommendations, email targeting, voice-of-the-customer analysis, voice-activated shopping, digital assistants for associates, fraud detection, financial planning, people analytics, cashierless stores, and especially fulfillment and supply chain. Not all have been successful – Walmart’s chief data officer recently cited a 75% success rate for projects.

In fulfillment and supply chain, data scientists are using AI across the full lifecycle – including shrink reduction, order sourcing (e.g. fulfillment center selection, estimated delivery dates), order/shipment preparation (e.g. picking & packing optimization, “Smart Substitutions” in case of stockouts), transport (e.g. “lane” planning, routing, load optimization), last-mile routing and scheduling, and last-mile order pickup (e.g. wait-time estimates).

Walmart is also experimenting with blockchain for food and drug traceability and freight-tracking. In Nov 2019, Walmart Canada launched a blockchain-based offering with automated freight-tracking and payment-processing for 70 trucking companies.

$120B of Walmart’s $524B in revenue (or 23%) comes from Walmart International, which has 6,000+ stores across 26 countries. Of this, ecommerce sales accounted for 10% last year and are expected to be 12% this year. Walmart’s priority markets outside the US are Mexico/Central America (Walmex; 3,400 stores and $33B in sales), Canada (400+ stores and $18B in sales), India, and China (430+ stores and $11B in sales). In India, Walmart owns the majority of leading homegrown platform Flipkart and the #2 digital payments player PhonePe, in addition to wholesale arm Walmart India (see our Jan 30 2020 brief on India as a market battleground).

In the meantime, Amazon has been bolstering areas of potential competitive weakness – investing $5.8B (Q2 2019 to Q2 2020) in one-day delivery for Prime members across most of the US, and offering same-day shipping on 3M items in select areas and within 5 to 13 hours on 100,000+ items in a few cities. It also offers one- and two-hour delivery from Prime Now on a smaller assortment of 20,000+ products, and AmazonFresh grocery delivery that was made free for Prime members in Oct 2019.

Amazon is also launching micro-fulfillment centers one-tenth the size of regular fulfillment centers close to US cities to facilitate same-day delivery. These smaller centers are equipped with the same automated inventory robots that Amazon has already deployed 200K+ of across 50 fulfillment centers globally. In Nov 2019, Amazon announced it was building a $40M robotics innovation hub that would work on technologies to improve ecommerce delivery speeds, with plans to open in 2021.

Amazon is also getting stricter on delivery standards for 3rd-party partners, ending contracts where delivery promises were consistently not being met and suspending FedEx ground delivery for a month due to performance. Amazon has been growing its own delivery capabilities – Morgan Stanley estimated in Dec 2019 that Amazon Logistics was delivering 50% of orders or 2.5B packages per year (as a comparison, UPS delivers an estimated 4.7B/year and FedEx 3B/year). Mid-2019 saw the announcement of an expansion of the Amazon Air fleet and plans to open a $1.5B central hub in Kentucky.

Amazon is also growing its efforts in physical retail, where it operates a footprint of 600+ locations (mostly Whole Foods), to include partner retailers in a program called Amazon Hub. In Oct 2019, Amazon announced it was expanding Amazon Counter, which allows customers to pick up ecommerce orders at partner retailers such as Rite Aid and GNC. It also has hundreds of Amazon Lockers installed in partner locations where orders can be picked up, and a deal with Kohl’s to handle Amazon returns at its 1,100+ locations.

Recently, Amazon opened its first larger-format supermarket employing the cashierless "Go" system with cameras, computer vision, and sensors. The supermarket is 10K+ square feet, over 5x larger than Amazon’s 25 existing Go stores. Amazon also plans to license the cashierless system to other retailers and has been in talks with airports, movie theaters, and sporting-event concessions.

As Walmart has sought to go upmarket, Amazon has been making moves downmarket to bring more users onto Prime – adding a monthly payment option for fees, discounting fees for those on government assistance, and offering ways for customers to pay in cash (see our Dec 13 2019 edition for more on Amazon’s financial services for the unbanked and underbanked).