During the coronavirus pandemic, where decades of mismanagement and grift at major retailers led to accelerated bankruptcies, Walmart trended the other direction. Absolute dominance.
Walmart, America’s largest retailer, saw overall revenue increase by 8.6% while maintaining higher operating margins. Online sales, arguably the most critical battleground in modern retail, grew 74%. “Our omnichannel investments have us in a unique position to serve customers in ways others can’t.” CFO Bret Biggs told investors. “Customers are gravitating towards store pickup and delivery, driving record demand for these services leading to triple-digit growth in U.S. eCommerce sales during peak periods.”
Barring any massive regulatory changes, Walmart is poised to continue to dominate a post-COVID-19 world. It raises two questions: How did Walmart get there, and what does it mean for others?
Omnichannel—the holy grail of traditional retail
There are a lot of different definitions of omnichannel. Truth be told, it has morphed into a buzzword over the last few years–partly due to the interest and the money companies are willing to invest to achieve it. Shopify, who offers a really competitive technology infrastructure for small firms, provides this definition:
Omnichannel retailing is a fully-integrated approach to commerce, providing shoppers a unified experience across all channels or touchpoints.
Omnichannel essentially means giving the customer the ability to buy whatever they want; however, they want it. Theoretically, it means that a customer can order ten items, pick up four at the store, get five delivered, and pick up the final item on their way to the destination. Branding and positioning should be the same throughout the entire transaction.
From a practical perspective, it means rethinking almost every aspect of a company’s supply chain to make life easier for consumers. This is both a technology and a business process problem.
Clarkston’s Sean Burke explains the technology problem:
There are likely technical challenges to achieving what the ultimate goal is – opening up inventory across the network to customers, regardless of where or how they are shopping. Real-time inventory is not widely accessible throughout these organizations and legacy systems are not equipped to handle the sophisticated routing necessary to make “ship from anywhere” an executable, cost-effective concept.
He then explains how it relates back to the underlying business process:
Opening up stores to operate as fulfillment centers is not simply a technology challenge. It can fundamentally challenge the way brands approach inventory management. If the ultimate goal is to have product available when, where, and how the customer wants it, then inventory needs to be staged in the network to make this a feasible goal. For brands that operate with lower inventory on the shelves and little back-room space, there won’t necessarily be the volume available to ship or for in-store pick up. The product mix at stores, along with the inventory levels available, could either drive the omnichannel strategy for a retailer, or need to be adjusted to allow for new functionality such as buy online, pick up in store. Simply plugging in the technology won’t boost the top line if the product isn’t there to be purchased to begin with.
Walmart mastered omnichannel
Based on Walmart’s results, and explanation, it’s pretty clear they solved both the process and technology hurdles associated with omnichannel.
CEO Doug McMillon explains:
In the U.S., we quickly rolled out ship from store and we’re now temporarily fulfilling orders placed on walmart.com through about 2,500 of our stores. We also launched Express Delivery to provide customers the convenience of having their orders delivered to their door in under two hours. The Express Delivery is available at nearly 1,000stores today, and our goal is to be in around 2,000 stores by the end of June.
This transition is a real-life case study on how retailers don’t need to directly compete with Amazon. Walmart isn’t trying to offer everything and ship it from centralized distribution centers. It is using its existing decentralized infrastructure to service customer needs.
As I’ve written before:
Through itself and third-parties, Amazon offers almost every single product on earth and has over 300 distribution centers that help turn a cost into a profit center. Walmart offers a fraction of the assortment in its 4,700 stores, and has just 20 distribution centers to fulfill them. It would years and billions of dollars to mimic Amazon’s network and business model. No traditional retailer has the time or the patient investors required. Basically, no traditional retailer can compete playing Amazon’s game.
The Coronavirus forced Walmart to transition.
What does it mean for others?
Coronavirus has meant doom for most retailers. Prior to the pandemic, most were faced with competing against Amazon, a hybrid retailer, while dealing with legacy infrastructure and higher fixed cost. Covid-19 introduced several new variables into the mix—including store closures and additional cleaning costs.
It’s not going to be easy for retailers. Transitioning to an omnichannel distribution scheme is costly, but those that unlock it might just survive.
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