Tim Kung

Note: All posts reflect my views and opinions only

Part of the fun of I had with Mason Park, the e-commerce startup we had, was the challenge of understanding the players and the market to predict where e-commerce is headed.

In the past few years, there has been no shortage of news on the struggles of traditional retailers and the triumphs of Amazon. However, beyond the extreme cases of failure or flourish, I think it’s interesting to see how some of the retailers are adapting themselves to the new retail landscape.

Walmart’s $300M acquisition of Bonobos, a ‘digitally native’ hipster menswear retailer, was a curious acquisition that seemed counter to Walmart’s image of a low priced mass market retailer. How could Bonobos, seemingly the opposite of Walmart, fit into its strategy?

How could Bonobos, seemingly the opposite of Walmart, fit into its strategy?

The Bonobos acquisition, along with other recent moves by Walmart give clues to where the retail giant is headed in the continually changing face of retail and e-commerce. If there’s one player in retail that has the resources and influence to shift an industry and challenge Amazon, Walmart would be it.

In this post, I’ll look at a few of the interesting activities from Walmart e-commerce to get an idea of what the giant may be up to.

What Has Walmart Been Up To?

Acquisitions

While Walmart has acquired some e-commerce players that aren’t too far off from its core business, such as the acquisition of Jet.com, there have been other acquisitions that don’t readily appear to fit with Walmart’s business strategy. This would include the aforementioned Bonobos acquisition, as well as the acquisitions of other specialty retailers such as Modcloth and Moosejaw. I believe Walmart is aiming for a few goals with these specialty acquisitions:

1. Expand e-commerce presence – Walmart is in catch up mode in the e-commerce world and a straightforward way to build selection and customers would be to just acquire players in the industry.
2. Reach new audiences – Walmart traditionally caters to a fairly defined customer seeking the lowest priced goods. Acquisitions in segments beyond Walmart’s traditional reach is a quick way to gain access to desirable demographics.
3. Build brand differentiation – Bonobos and Modcloth aren’t just retailers, but they’re brands also. With the brand acquisitions, Walmart gets to incorporate desirable, differentiated products into their offering.

Store No. 8

In 2017, Walmart announced “Store No. 8,” a technology start-up incubator in Silicon Valley to identify and develop new retail technology. Some of the announced or rumored initiatives coming from Store No. 8 include checkout-less shopping, virtual reality shopping, and personalized shopping. These initiatives sound a lot more like the projects one would hear from companies like Google and Amazon, and I believe Store No. 8 targets these players directly.

While acquisitions are a defensive catch-up strategy by Walmart, Store No. 8 offers an opportunity for offensive moves to develop new technology that shapes the future of retail. Store No. 8 enables Walmart to innovate beyond their core competencies and dream up wild new ideas, just like the titans of tech do today.

Shopping Incentives

With free 2-day shipping (as opposed to Amazon’s paid Prime program with 2-day shipping), Walmart is looking to undercut Amazon’s Prime program by giving away one of Prime’s key features. In-store incentives such as free same day pickup and pickup discounts leverage Walmart’s thousands of brick and mortar locations to add customer value and competitive advantage in ways that Amazon and other players may not be able to yet. With a strong brick and mortar presence and a strong focus on e-commerce, Walmart is undoubtedly looking to position itself well in an “omnichannel” future.

So Where’s Walmart Headed?

The above activities are just a small glimpse of the activities of Walmart, but I think they provide some great clues to where Walmart will go in the e-commerce space. Here are my predictions:

Continue to Expand Selection and Segments in E-commerce

This is just an extension of what Walmart has already been doing. With Amazon racing ahead in just about every facet of e-commerce, Walmart needs to grow as quickly as it can to avoid drifting too far behind. This is where expansion of Walmart’s e-commerce reach comes into play.  While Walmart.com services a certain market and price point, Walmart has decided to target Jet.com towards a different segment, one that is younger and more upscale than the traditional Walmart customer. For example, in 2017 Jet announced a partnership with Tasty, of Facebook recipe videos fame, in a play to reach younger audiences. Walmart is fully aware that their stores cater to everyone up to a certain point, and beyond low price points, shoppers will go elsewhere.

I wouldn’t be surprised to see Walmart continue to move towards a diverse e-commerce portfolio of businesses with branded products such as Modcloth, specialty retailers such as Moosejaw, and general or localized e-commerce such as Yihaodian.

Differentiate With Brands

With Walmart and Amazon carrying the same selection of products, the advantage will go to the player who can offer a lower price or offer better service and delivery. Lower prices is a difficult and undesirable game to play, and beating Amazon at service and delivery is a massive task. Given these factors, if Walmart can offer desirable products exclusively, customers have a clear reason to shop at Walmart, especially if Walmart also offers great selection, low prices, and excellent service.

Walmart started on this path with Bonobos and Modcloth, and is reportedly launching its own upscale bedding and cosmetics brands. I’m sure we’ll continue to see more “cool” brands come from Walmart. However, with this tactic long been deployed by department stores with their own exclusive brands and collaborations, the challenge will be in creating credible, desirable, and resilient brands.

Innovate With Brick and Mortar

With a strong brick and mortar presence and a large associate workforce, it is expected that Walmart will continue to leverage its physical presence as an asset, especially since competitors such as Amazon do not have such a presence yet. With faster delivery being a consistent theme of e-commerce, it wouldn’t be surprising to see Walmart utilize their brick and mortar locations to improve the delivery experience in particular for customers. Stores themselves can become mini warehouse and shipping facilities, with associates picking and shipping items direct from stores to customers. The large number of associates and stores could also lead to innovations such as last mile delivery from the nearest Walmart store to customers.

Boom or Bust For Walmart?

In February 2018, Walmart posted a slow down in online sales growth and lower than expected holiday season performance. Fear permeated and the stock tumbled.

There are a couple of ways to look at this. One perspective is that Walmart has lost its way and desperately needs to get back on track. Another perspective would be that Walmart is playing a long game, one that won’t see returns until initiatives roll out and start coming together.

What I find interesting about Walmart is that it is pointedly playing a defensive (catch-up) and offensive (leap-frog) strategy to Amazon. While many retailers have just rushed to try and build e-commerce businesses in response to the shift in retail, many fail to realize is that it is extremely difficult to try and beat, let alone catch up to, Amazon in the areas it’s great at. Walmart is clearly aware of where it can challenge Amazon (eg. brick and mortar) and where it can seek to differentiate (eg. brands).

While Amazon has been called “the everything store,” I believe that e-commerce and retail is large enough that Amazon still has a long way to go to truly service every segment possible. Different segments of retail have different needs. The way customers shop is constantly evolving. Given the variation in needs and customer behavior, there’s plenty of opportunity for success.

Walmart, as with many other companies in retail, are placing bets on where the industry continues to go. Will it be virtual-reality based shopping? AI powered shopping assistants? Social network shopping?

Whether or not Walmart has placed the right bets in the new retail landscape will be fun to see. Regardless, I’d expect in even just two short years, Walmart’s e-commerce business of 2020 would look pretty different its business of 2018.