As retail continues to experience a significant shift, driven by new technologies which are driving the intersection of physical and digital retailing, Walmart is determined to shape the right strategy to ensure its future relevance.
Investing in e-commerce is a major part of this, as the retailer focuses on improving access, assortment and the experience for its shoppers. But a major challenge for the business is that it is shifting its investments into a channel that is currently diluting its profit margins. However, given long-term trends for the retail sector, these investments are necessary.
E-commerce growth overshadows physical stores
Walmart is ultimately following the money. Between 2014 and 2017, the retailer is forecasting e-commerce sales globally to increase by 30% to 40% on a compound annual growth basis, compared to growth of 2.5% to 3.5% within physical stores.
While there is clearly a short-term impact on profits as investments are channelled into building capability and developing the supply chain infrastructure for ecommerce, it is done with the expectation of stronger returns in the future.
Stores will continue to account for the bulk of its investments
But it’s important to read beyond the headlines. Store-based investments will account for the majority of its capital spending next year – almost 90%. However, even in this area there is a significant shift happening, particularly in the US, where it will only open around 65 Supercentres compared 240 smaller format Neighborhood Markets. Maybe we will soon see a shift to smaller formats in Canada, the only major market where Walmart has a single physical format strategy.
Creating new experiences for its shoppers
Through its digital and e-commerce investments, Walmart is focusing on creating a new experience for its shoppers. This is based on building a leadership position in this area through anticipating customers’ needs and developing new ways in which to serve them, particularly at the intersection of digital and physical retailing.
Initiatives such as its "Savings Catcher" program, which is driving price transparency in the US, are focused very much on driving a better experience in-store, helping to build trust in its price leadership. This program helps its shoppers to get the lowest prices on featured products at Walmart. This has recently been integrated into to its app, helping to automate the process.
Convenience is also at the forefront of it recently launched grocery pick-up facility in Bentonville for online grocery orders. This draws on the retailer’s Click & Collect experience in the UK at Asda-Walmart, and could be a model for future growth here in Canada.
Over $33bn in potential ecommerce sales by 2020
So how big could this be for Walmart?
Taking the mid-point of its growth forecasts, e-commerce could represent 6% of Walmart’s global scales by the end of 2017, up from 2.1% last year.
Over the next three years, its e-commerce sales could grow to be in excess of $33bn, and given the rapid pace of technology innovation that we’re likely to see over the same period, this is likely to be just the start of its growth in this channel.
So watch this space for new innovations and sales growth.