Why an emboldened Walmart is looking to beyond retail for future growth

A woman wearing a face mask walks past a news24nation informing customers that face coverings are required in front of a Walmart store in Washington, DC on July 15, 2020.

Andrew Caballero-Reynolds | AFP | Getty Images

Walmart wants to tap what it sees as its greatest asset: its reach.

Every week, 150 million customers visit its stores, website and app. The company not only wants to sell groceries, clothes and other items. It wants to chase new business opportunities, from bulking up its ad sales to becoming a major health-care provider. With the strategy, Walmart is acknowledging a tough reality: Retail may not be enough to power its future.

On Thursday, the retail giant’s leaders spoke at a virtual investor day and detailed a plan to sustain momentum as some coronavirus pandemic-related tail winds fade and online sales swell.

Walmart CEO Doug McMillon said the discounter will weave together diverse services that customers want, from issuing a credit or debit card to dropping off groceries on their doorstep. It will also increase investments to cater to customers’ changed shopping habits, such as automation that will help it keep up with the heavy volume of curbside pickup orders.

“We feel emboldened and are now moving with even more speed and aggressiveness,” he said. “We’re scaling new capabilities and businesses and denews24nationing them to work together in a mutually reinforcing way.”

A new playbook

With the move, the big-box retailer is taking a page from retailers like Apple and Amazon that have built an ecosystem of products and services to deepen loyalty and win more of customers’ wallets. Amazon Web Services has been the profit engine of its parent company, helping the e-commerce giant offset the challenging economics of selling items it must pick, pack and ship.

It’s riffing off another Amazon strategy, too. This fall, it launched Walmart+, a subscription-based service with perks like free shipping and unlimited grocery deliveries to the home. The service costs $98 a year or $12.95 for a month.

Walmart faces skepticism as it unveils the new playbook, however. It fell short of fourth-quarter earnings estimates, despite a robust holiday season and sales lift from stimulus checks. The results and its forecast for moderating sales in the year ahead prompted a sell-off. Walmart shares closed Thursday down 6.48% to $137.66. Its market value is now $389.48 billion. In the fiscal year, Walmart grew its revenue by $35 billion, but higher sales alone won’t get it to higher profits.

Remaining competitive will require big-ticket investments. Walmart plans to spend about $14 billion in the coming year, improving its supply chain and adding automation, the company’s CFO, Brett Biggs, said. That’s higher than its typical rate of $10 billion to $11 billion, he said. These improvements will likely make online sales more efficient and profitable.

Still, McMillon sees a way for Walmart to capitalize on its assets — including its more than 4,700 U.S. locations. For example, the company can turn TV and checkout screens in stores into ad opportunities, use its large parking lots to support health clinics that it is opening in parts of the country and promote online merchandise through TikTok livestreaming events.

“This is the right time to make these investments,” he said. “The strategy, team and capabilities are in place. We know where the customer is going. We have momentum and our balance sheet is strong.”

Staying a few steps ahead

Walmart recently renamed its ads business and told CNBC it wants to grow that division by more than 10 times in the next five years. It has opened 20 health clinics with lower-priced medical services like annual physicals, dentist checkups and therapy appointments — with plans for more. It is launching a fintech start-up with investment firm Ribbit Capital to offer unique, affordable financial products for its customers and employees.

McMillon said the company must stay a few steps ahead, especially as it sees such rapid change in the retail industry. The pandemic has permanently changed how some customers shop by fast-forwarding many of the trends Walmart was preparing for, according to McMillion.

“In the future, people will still want to shop in compelling stores, but more and more there will be occasions when they prefer to pick up an order or have it delivered,” he said.

“Some customers will eventually allow us and pay us to keep them replenished in their homes on the items they routinely purchase,” he said. “For an increasing number of customers, Walmart will be seen more like a service. Customers will think of us as the merchant that serves their wants and needs, but in ways that take less time and effort.”

And that’s why it’s investing in turning its stores into mini warehouses that use robots and employees to quickly complete online orders for delivery or curbside pickup. That, in turn, will help attract more members to Walmart’s subscription service, Walmart+, since home deliveries are a key reason why customers news24nation up, he said.

But, McMillon added, Walmart is letting go of some areas as it invests in others. He said it will continue to divest from markets and businesses, which allow it to focus on areas with greater growth potential.

Correction: An earlier version of this misstated the number of visitors Walmart receives.