Walmart is building out a system to challenge its rival’s Fulfilled by Amazon service, and has good reasons for tapping the brakes on its digital-brand buying spree.
Speaking at the Code Commerce 2019 conference hosted by Recode, Marc Lore, CEO of Walmart e-commerce in the U.S., disputed the idea that Amazon’s nationwide network of roughly 100 e-commerce warehouses, provides an inherently unmatchable advantage over the five times fewer facilities Walmart operates.
“People think the more warehouses you have means the faster things are going to be,” Lore said, according to a video of his talk about Walmart’s strategies. From just seven warehouses Walmart is able to reach 75 percent of the country with next-day shipping for orders placed before 3 p.m., he explained.
Walmart has seen its contributed profit margin expand at a healthy rate year over year, and some of that extra padding is earmarked for investments, like a fulfillment service that positions the world’s largest retailer for sustained future success, according to Lore, and enables a greater swath of products to be fulfilled rapidly. And Walmart hopes its decision to launch a $98 annual membership that offers free same-day grocery delivery could someday lure customers away from Amazon’s more costly, $119-per-year Prime loyalty program.
Lore said Walmart made a conscious decision not be a “follower” and copy Amazon’s strategy of building dozens of warehouses to get any of 10 million products shipped overnight to customers, describing that approach as both “very expensive” and not necessarily efficient. Rather, Walmart leverages its “unique assets”—thousands of supercenters—to get products to customers quickly. Three quarters of the most in-demand SKUs can be found in stores, Lore explained, and the next 500,000 can be shipped from any of those seven warehouses.
And that leads back to the $98 plan. Though for now, the membership is focused on delivering the “fresh and frozen” category alongside a limited selection of general merchandise, groceries could be the hook needed to convince many American households of the value of shopping and saving with Walmart.
As people begin to use the service, over time they’ll explore the selection of products available overnight from an e-commerce fulfillment center, and begin to question why they even need a Prime subscription when “70 percent of my dollars are here with Walmart,” Lore said of what an average household might spend on groceries and general goods. Delivery speeds might lag Amazon’s slightly, but Walmart can compete on price parity, he added.
Whereas Walmart once had ambitions of acquiring a new company or digitally native vertical brand (DNVB) quarterly, Lore said the retailer is now refocusing its efforts while keeping an eye out for attractive M&A opportunities. The company made waves purchasing millennial-friendly brands including Bonobos, Moosejaw, ModCloth, Eloquii and Bare Necessities in rapid succession, and Lore credits those acquisitions as helping to build out Walmart’s assortments in a short timeframe.
But these days Walmart hasn’t found any specialty retailers that fit the model it’s looking for, Lore explained, adding that the “niche” spaces it’s exploring tend to have just one or two players, limiting opportunities for acquisition. Plus, he said, “we’re not looking to buy EBITDA, we just want the assets and products.”
Lore thinks differentiation will determine the future and retailers offering proprietary content—amazing products unavailable elsewhere—will win. After seeing success with Allswell, a mattress brand developed in house, Walmart is ramping up investments in three other incubated brands. “It was an ‘aha’ moment that we can build these as well,” Lore said of realizing that Walmart itself could invent the next great DNVB.
What’s more, this renewed focus on incubating startup brands means fewer dollars are available to take next-gen brands off the market, said Lore, who confirmed that Walmart has spoken with potential buyers about the possibility of offloading ModCloth.
“Given the amount of money we’re investing in these incubator brands, it’s not as palatable to go out and buy something today,” Lore said.