Walmart: A Surprising Winner in Omnichannel Retail
As delineations between physical and digital storefronts fade, Walmart has recognized that the future lies in “omnichannel” retail — a world where retailers serve customers seamlessly through online, mobile, and in-store interactions.
With US online retail sales on pace to reach a record $350 billion this year, conventional wisdom might suggest that traditional brick and mortar retailers are losing to online competitors. But Walmart, the classic example of a brick and mortar business, is reinventing the customer experience to bring together the best of digital and physical commerce in ways that pure-online retailers like Amazon and Jet cannot offer. As delineations between physical and digital storefronts fade, Walmart has recognized that the future lies in “omnichannel” retail — a world where retailers serve customers seamlessly through online, mobile, and in-store interactions.
Want to order a prescription on your phone and pick it up while grocery shopping? Want to have an out-of-stock item shipped to your home from a different store? Want to drop off an online return at the store instead of shipping it back? Done, done, and done. Consumers increasingly value the ability to shop anywhere, anytime, and an omnichannel approach allows retailers to meet those needs while presenting a consistent brand experience across the digital and physical worlds.
Omnichannel retail is a goal for most large retailers, but Walmart is both highly focused and uniquely positioned. With the world’s largest brick and mortar retail business and the third-largest US online retail business, Walmart is more capable than any other company to bring customers the best of both worlds. Its incredible scale (Walmart sales account for 2% of US GDP), a longstanding expertise in big data analytics, and a world-class logistics operation give Walmart an unmatched combination of assets to make omnichannel retail a reality. And the company is investing heavily, having hired over 2,500 employees at its ecommerce headquarters in Silicon Valley and dedicating over $1 billion annually to build a global technology platform to support its omnichannel vision.
The goal for Walmart.com is thus not to replicate Amazon but rather to use Walmart’s impressive network of digital and physical assets to deliver the best possible integrated experience to customers both online and offline. This intersection of virtual and physical worlds is one where Walmart clearly has the upper hand against competitors, and so far it seems to be working — Walmart’s online sales have reached $13 billion, and its ecommerce growth has outpaced Amazon’s since 2013.
As online retailers like Warby Parker and Bonobos open more brick and mortar stores, there is growing evidence to suggest that omnichannel is indeed the right path forward. Only time will tell whether Walmart will be able to execute effectively on its omnichannel vision, but for now I’m betting it’s a #winner.
After reading “the Everything Store”, about the rise of Amazon (recommended!), it is interesting to see how Walmart has really picked up and started to leverage its physical presence in the online economy, after overlooking online retail for a long time. Furthermore, Amazon is slowly moving into physical stores as well (http://money.cnn.com/2015/02/04/technology/amazon-purdue/) – should be interesting to see how this plays out between the two giants in the coming years!
John Lewis, a leading UK department store and omnichannel retailer, started charging its customers last year for its click-and-collect (order online, pick up in store) service on minor orders claiming that getting small inexpensive items into stores for free is unsustainable despite its major investments in supply chain and IT (http://www.theguardian.com/business/2015/jul/01/john-lewis-to-charge-for-click-and-collect). Walmart may have sufficient scale to make this work as part of a portfolio of channels but it will need to face the fact that the economics of different channels may vary widely and, if pricing is not differentiated, customers may start cherry-picking delivery deals.
I totally agree that Walmart’s omnichannel strategy is the right approach in combating Amazon’s dominant retail presence. The main challenge to actually implementing this strategy, imho, is in controlling shipping and fulfillment expenses by (1) finding the optimal inventory allocation, (2) making the correct sourcing decision and (3) retraining or hiring store employees to correctly fulfill e-commerce purchases. This is no small feat and will require heavy investment in both the store and backend software, which may not sit well with the current shareholders who seek capital preservation versus growth. I believe that Walmart should focus its omnichannel strategy on fresh grocery, as this is one category in which it has a large leg up over Amazon given that grocery is over 50% of its revenue and a vast last mile delivery network is crucial for executing an online-offline transaction.
I like Walmart’s approach and vision of omnichannel. Additional work is needed to make sure they match competition with service levels in field they are sharing (match
Amazon or Google delivery times and product variety). Offering home deliveries somehow seems to contradict the low value everyday model by providing premium service. It might be best stick to pickup option only for now.