Home Big Retail Beyond 2021: Walmart Seeks Profit From Initiative Blitz
July 26, 2021
Big Retail Beyond 2021: Walmart Seeks Profit From Initiative Blitz
Walmart Announces Partnership With Green Dot Bank

By Mike Duff

Contributing Editor

This is the second installment of an exclusive HomePage News series examining the state of major home and housewares retailers entering the back half of 2021.

Read all installments of the HomePage News series: Big Retail Beyond 2021.

Walmart is an example of a major retailer that enjoyed strong sales during the COVID-19 pandemic but, like some others, launched several programs and confronts a complex road ahead into a potentially challenging post-coronavirus reality.

Among the challenges is ensuring new initiatives that have driven sales during the pandemic bolster the bottom line.

Walmart certainly hasn’t been shy about rolling out new programs, including a home collection created in a partnership with Gap that includes tabletop, decor, bedding and bath. The June 24 launch on Walmart.com ensured the collection was available in time for the back-to-school/college season. It includes 400 items, according to Walmart, and, even if launching in time to boost the retailer’s competitive position for dorm-room purchasing, the collection isn’t just targeted at students but anyone outfitting a home. Walmart will introduce additional seasonal and special collections throughout the year developed with Gap’s licensing agency, IMG.

The new collection is one of several moves undertaken in what has been Walmart’s merchandise core. The retailer, however, has been expanding efforts through and beyond what have been its traditional operational boundaries as it repositions itself for a future when it will emphasize services offered more than it does today. From curbside pickup to healthcare services, Walmart is building capabilities, executives say, that the company believes will drive the business in the future. In one example in support of the merchandise offering, Walmart announced in mid-May that it had struck a deal to acquire Zeekit, an operation that matches fashion and fit online by offering virtual try-on functions.

In announcing the deal, Denise Incandela, evp/apparel and private brands, Walmart U.S., stated, “Over the last few years, we’ve been working hard to expand our apparel assortment to include quality, on-trend and accessible fashion to help customers outfit their closets no matter their personal style or budget. But, in an increasingly online-driven category, customers not only want variety in styles, but also an inspiring and personalized digital experience that makes shopping for apparel easy, fun and social.”

Virtual try-on is a game-changer and solves what has historically been one of the most difficult things to replicate online: understanding fit and how an item will actually look on you. Zeekit will help us deliver an inclusive, immersive and personalized experience for our diverse customer base.

– Denise Incandela, evp/apparel and private brands, Walmart

She went on to say, “Virtual try-on is a game-changer and solves what has historically been one of the most difficult things to replicate online: understanding fit and how an item will actually look on you. Zeekit will help us deliver an inclusive, immersive and personalized experience for our diverse customer base.”

Home Fashion

Walmart has renewed its fashion interest in the home by working with Gap, and in the wardrobe not only with Zeekit but also by beginning a collaboration with American fashion designer Brandon Maxwell, who has become creative director for its Free Assembly and Scoop “elevated” fashion brands.

Of course, the company has tried to bolster its fashion equation before and later scaled back. But given its ability to use the online space to initiate new moves with less cost and little or no disruption to the in-store business, Walmart is exploring fresh routes into more stylish territory.

Wall Street was pleased when Walmart provided its most recent financial update. On the back of an earnings beat that was part of the company’s May 18 first quarter financial announcement, Walmart share price surged to around $149 after floating around $138 in the week before and settling in around $142.50 immediately thereafter. However, the share price had been knocked back in mid-May as concerns about the retailer arose.

Although it made strides in the COVID-19 pandemic as an essential retailer, Walmart got hit by a leaked memo to potential advertising agencies that expressed frustration with the uptake and retention rates in its Walmart+ membership program as well as with competitors chipping away at its grocery market share.

Walmart+ Grocery & Rx Discussions

On the food side, Walmart acknowledged in the memo that consumers weren’t satisfied with its grocery quality and value, according to Recode, which published the contents of the memo. The retailer also acknowledged that competitors had gained a larger share of additional spending in some general merchandise than it liked.

In a conference call following the first-quarter earnings release, Walmart addressed grocery market share and Walmart+, although it didn’t reference the memo. For the most part, it was positive about grocery, which has become a bigger driver of consumer visits in-store and online, and the additional value it has been instilling into the assortment.

 

Walmart Stores Inc. Chief Operating Officer Judith McKenna
On the other hand, the company was a bit lukewarm about Walmart+ prospects in the conference call. Still, the ability to provide additional value adds in addition to Scan & Go, a selling point for memberships now, could start to make the program a more valuable loyalty builder and customer data source.

In the conference call, Walmart president and CEO Doug McMillon, said, “We’ve got so many other things going on with stores improving and traffic and e-commerce growing and marketplace and all that kind of stuff, we don’t think Walmart+ should be the primary focus at the moment for us with all these other opportunities.”

In the same conference call, however, one executive, when asked about the company’s likelihood of adding a wellness benefit to Walmart+ membership, dropped a hint that it just might. Then in early June, Walmart announced that it had created Walmart+ Rx, a prescription discount program offering select medications at zero cost and thousands of additional prescription medications up to 85% off.

Wellness Potential

As it forges ahead with major initiatives, Walmart has made wellness a particular point of emphasis. The retailer is going beyond being a goods purveyor and prescription filler to become a healthcare services provider. Walmart and telehealthcare business MeMD announced in early May that they entered into an agreement whereby Walmart Health would acquire MeMD.

In doing so, Walmart stated, it is furthering a commitment to integrated, omnichannel health delivery, leveraging data and technology to improve engagement, health equity and outcomes. The strategy gives Walmart the opportunity to engage consumers more broadly with direct efforts and, potentially, rub-offs ranging from over-the-counter drugs to personal care devices.

Walmart is investing in services to drive online and in-store visits and loyalty. In addition to convenience and healthcare, it is adding financial services, recently announcing the expansion of its established relationship with Green Dot.
Walmart is investing in services to drive online and in-store visits and loyalty. In addition to convenience and healthcare, it is adding financial services, recently announcing the expansion of its established relationship with Green Dot. As such, new and existing Walmart MoneyCard account holders will be able to access Green Dot’s more comprehensive digital banking platform through accounts that work in a way similar to those they might open at a traditional bank.

The intention is to make it easier and more convenient for account holders to manage their finances either digitally, at Walmart’s 4,500-plus locations or via Green Dot’s 90,000-plus retail distribution locations nationwide.

On another front, and during a period in time when international supply chain woes are underscoring the value of local sourcing, Walmart announced the launch of its eighth overall and second virtual Open Call for products made, grown or assembled in the United States. The early spring announcement followed one on March 3 pledging the company to spend an additional $350 billion on U.S. sourced goods. Walmart scheduled the open call event for June 30.

According to a Walmart spokesperson, the virtual event was trending to additional attendance.

“About a week before the entry deadline had closed, more than 3,500 businesses had applied for the chance to pitch their products, and more than 10,300 merchant meetings had been requested, tracking ahead of last year’s numbers at the same time in the process,” the spokesperson said.

Connected Walmart

At the same time as it’s encouraging new domestic vendors, Walmart has bolstered its commitment to its online marketplace and companies participating on it, expanding the company’s role there as a services provider with Walmart Fulfillment Services and Walmart Connect advertising.

“Marketplace growth accelerated this year as we’ve added new seller tools, improved the overall experience and introduced new services designed to help them grow their business,” the spokesperson added.

Marketplace growth accelerated this year as we’ve added new seller tools, improved the overall experience and introduced new services designed to help them grow their business.

-Walmart Spokesperson

Initiatives recently launched in support of the marketplace operation included partnerships with Shopify and BigCommerce that have brought more sellers to Walmart.com. Last year, e-commerce platform Shopify opened Walmart Marketplace to the million plus businesses that use its services, Walmart noted. The deal with BigCommerce, an open software as a service, or SaaS e-commerce platform, enabled both fast-growing and established brands that satisfied specific criteria to sell products directly on Walmart Marketplace.
At the same time, Walmart is trying to make its investment in workers more effective. This spring, Walmart announced that it has debuted a new worker app developed to boost efficiency. To ensure they use the app to the best advantage, the retailer offered 740,000 employees a free Samsung Galaxy XCover Pro smartphone. The Me@Walmart app, developed by Walmart Global Tech for U.S. store employees in the United States, acts as an exclusive workplace destination that offers new features that can simplify daily tasks, serve customers and plan for life outside of work, as the company put it.
The Me@Walmart app, developed by Walmart Global Tech for U.S. store employees in the United States, acts as an exclusive workplace destination that offers new features that can simplify daily tasks, serve customers and plan for life outside of work.
Mara Devitt, senior partner at consultancy McMillanDoolittle, made the point that all the various initiatives that retailers launched or accelerated during the coronavirus crisis need to be evaluated and, where necessary, fine-tuned to ensure and to maximize profitability. She noted that because many consumers turned to Walmart during the pandemic given that its stores were open in the first place, the retailer has an opportunity to build off what has occurred and make greater gains.

“They were able to win trips as trips compressed and consumers spent a lot more in each,” she said.

Profit Implications

Now, Walmart has to consolidate what it gained and see how it can advance profitably.

As busy as it has been, Walmart clearly has had to set priorities in its business. Not even the Bentonville behemoth has been able to cope with all it has wrought, and company executives have warned that its financial results will see the effects of investment in capacity the company is making before the new resources are fully employed.

In Walmart’s first-quarter conference call, McMillanDoolittle said, “As it relates to capacity getting ahead of growth, it’s starting to happen. The plan that we had for the year is being executed. And as you’re in stores, you can see the stress that some of our stores are under in terms of the volume going through for pickup and delivery orders, and in some stores, we’re expanding space. Capital is going toward that.

“In some stores, we’ll be putting in automation to really press the top end of this thing where we know we’re going to have that kind of demand and the team is executing against that,” McMillon continued. “We’ll go as fast as we can go this year and do it well, and I think we’ll learn a lot from it, and we’re very confident that that capacity is going to be needed.”

As it relates to capacity getting ahead of growth, it’s starting to happen. The plan that we had for the year is being executed. And as you’re in stores, you can see the stress that some of our stores are under in terms of the volume going through for pickup and delivery orders, and in some stores, we’re expanding space. Capital is going toward that.

-Mara Devitt, McMillanDoolittle

Although it rattled markets temporarily, the memo that circulated this winter did so in the midst of the pandemic, and, so addressed unusual circumstances. However, it does suggest some areas where Walmart will commit thought and resources as the COVID-19 crisis wanes. Further, it demonstrates that an increasingly complex Walmart operation will be vulnerable to rumor and disappointment when an initiative doesn’t gain immediate traction; and that management of an enterprise that is adding and expanding complex online and in-store programs will become significantly more complicated in operation.
However, Walmart has historically withdrawn from or reconfigured initiatives that haven’t worked out, as was recently the case with its businesses in Japan, Argentina and the United Kingdom, and that’s not even mentioning what happened with the come-and-gone Jet.com and related online acquisitions including those of fashion sites such as Bonobos.com and ModCloth.com. Indeed, the evolution of its international and online operations may be considered evidence that Walmart has kept a fair focus on the core U.S. retail business and will continue to do so. At the same time, history suggests that any Walmart dabbling in peripheral initiatives such as those with higher-level fashion will be short-lived if they don’t boost the core business.

Core Value

The core U.S. business faces challenges especially as a number of effective, growing retailers focus on the value customer. Walmart has a lot of initiatives going that could help it keep momentum going there if it manages to get them all pulling in the same direction.

In the coronavirus crisis, Devitt indicated, Walmart was able to build off of capability investments it already had made, as in curbside pickup, so the recent past suggests the retailer will be able to make strides based on its current crop of initiatives.

“They had been investing in internal capabilities and, in a pivot, did what they were going to do faster,” Devitt said. “Solutions for last mile, how do we get customers to pick up items in store? All those things they had in play, they were able to accelerate.”

Walmart employee
Yet, it’s fair to suggest that tracking which it maintains will signal the direction the company takes as it puts the pandemic behind it.

Ethan Chernofsky, vp of marketing for Placer.ai, makes the point that pharmacy and related wellness initiatives, as well as other services that Walmart is adding, are becoming more critical to its growth, as the basic value-oriented discount store position comes under increasing assault from strong competitors from Amazon to Costco to Dollar General to Aldi to TJX depending on the bargain-seeking consumer for growth. So Walmart may need services, including grocery pickup and, increasingly, delivery, to give it an edge. Recent investments in drone delivery operation DroneUp and Cruise, an all-electric self-driving vehicle company, indicate that Walmart will check out just about every angle it can find to give itself an advantage.

“Walmart is the king of retail and is doing interesting things in sustaining their audience from clothes to toys to pharmacy to health care,” Chernofsky said.

Proprietary Services

Another post-COVID consideration could be interesting: Target and Walmart’s strategies may be diverging. Target has been working to become the first-stop shop for middle-class consumers wherever they have an everyday need, an approach that can be detected in its deals with Ulta and Apple as well as its expansion of urban locations. In addition, CVS operates Target pharmacies. In contrast, Walmart owns and operates its pharmacies, and is building on them to expand health services, while partnering with other companies to expand services.
Walmart owns and operates its pharmacies, and is building on them to expand health services, while partnering with other companies to expand services.
So, Target is onboarding banners embraced by middle-class consumers to make itself more attractive to its target shopper base on more occasions while closely managing core operations including home furnishings and housewares. Walmart is expanding proprietary services and, so, positioning itself to build merchandising assortments around them. And, on the wellness front, it is doing so at a time when the two largest drugstore chains have deemphasized many general merchandise categories.

Although Walmart and Target will remain intense competitors, changes in approach to the consumer suggest that more substantial differentiation between the two retailers may occur. Of course, that all depends on the consumer, but it could be instructive to watch the changes occurring at Walmart and Target to see if they bring the rivals into closer contention or vice versa.

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