Walmart CEO Doug McMillon on e-commerce, automation, supply chain and becoming "truly an omni-channel retailer"

(Doug McMillon, CEO, Walmart)

Last month Walmart saw something of a return to its normal omni-channel form after spooking Wall Street earlier in the year with a drop in digital earnings as Vaccine Economy realities kicked in. At the time, CEO Doug McMillon was confident that the retailer bellwether was set for a good Holiday season.

This week, at the Morgan Stanley Global Consumer & Retail Conference, he drilled down in more detail on how that’s shaping up, as he declared:

I'm excited about where we are. I'm excited about our future…When I think about winning with the customer and member, I think the improvements that we're making in-store with pickup, with delivery, whether that's from a store or e-commerce around the world in the 24 markets that we operate in, is making progress.

There are three drivers for this enthusiasm and optimism, explained McMillon:

First one is just opportunities to manage the business better in all the kinds of ways that we do in retail. Maybe more strategically, there's a productivity opportunity with automation, particularly in our supply chain and how that will affect store operations in particular. And then thirdly, the business model is changing. And the thread that you move through as you build a first party e-commerce business and then a marketplace and then fulfillment services and then ad income and then other forms of data monetization, creates an opportunity to have higher margins and change the margin mix of the business so that we're more resilient and more profitable at the same time. And that work is underway.

Moving online 

It’s a far cry from a business model that was perhaps overly dependent on US supercenters back in the early part of last decade, shaped in large part by consumer demand to do business online, he added:

The customer wants e-commerce. We were behind. We did the things we did to accelerate that. And last year, we had a $73 billion e-commerce business globally in terms of revenue. But that all kind of felt like silos or channels. What happened along the way is, we realized that the magic is in the way that you put them together and truly creating omni-channel to save people time, not just money… It does feel like that for some period of time now, the channels went away. It's been more seamless and that required us to change how we work inside the company. We finished off organizational structure changes to make that easier for our teams to execute. And now I think we are truly an omni-channel retailer.

Playing a major role here is Walmart Plus, the membership subscription service launched back in 2020. McMillon said:

Having a digital relationship which starts to head towards Walmart Plus is really important. We've shared before, if people buy in-store and online with Walmart.com, they generally spend twice as much and they shop in store more often. That data has held over time. And so that digital relationship, which could be for a pick-up order, it could be for a delivery order, whether that's from a store or an e-commerce fulfillment center, that's really important to us. And then you get to Walmart Plus, and we do like the behavior we see when someone becomes a Walmart Plus member.

He added:

The primary reason why someone would want to become a Walmart Plus member is for free delivery. Our food and consumables customer value proposition is attractive. It's high quality, at a Walmart price, and now you can get it delivered for free in an unlimited fashion. Our challenge is to take that frequently purchased set of items in that relationship and have it extend into more discretionary items and build the basket out over time…The way to think about this is, we want to engineer an offer to customers that causes them to want to be members, that is going to appeal broadly. And so it was helpful to add a fuel discount, it's helpful to have scan-and-go. Paramount Plus has proven to be helpful and we will add more things over time, but in a strategic and choiceful way, not just throwing spaghetti at the wall.

The future 

Overall, despite the unstable and unpredictable economic climate, McMillon believes that Walmart has a range of tools in its arsenal that will make riding out any turbulence easier than in previous downturns:

What's different now is, we've got this bigger e-commerce business - 370 million items on the US marketplace - we’ve got an app, we've got pick-up, we've got delivery, we've got Walmart Plus. We added Paramount Plus to it. So there are things in place that were not in place in the last cycle that we hope will help us retain more customers.

And there’s more to come in terms of investment, he said, particularly around supply chain and automation:

What we're seeing is after a number of years of work, there are opportunities to use automated storage and retrieval systems in ambient distribution centers, food distribution centers, e-commerce fulfillment centers, and eventually market fulfillment centers next to stores. And they're all four basically the same thing.

We're working with four different parties to do it, but it's all basically carts with wheels, putting away items or cases in dense steel, almost like data in the cloud that does not have a human in the middle of it, a forklift in the middle of it, or an empty aisle like you see in an old fashioned distribution center. The items go in and they come out the other side either as a customized e-commerce order for a customer or as a pallet that has been mixed that is specific for a department and a store.

This is a long term vision, he added:

In addition to the robotics aspect of what I've just described, there's work underway related to the data that we've got for our supply chain and the algorithms that we use to optimize it.

You can imagine that in the past, we went from an ambient network for discount stores to an ambient network plus a food distribution capability. Then we layered on e-commerce fulfillment centers. Each one of those had different operating systems and operated to a degree in a silo.

What we've been changing, and have made progress towards changing, is syncing all those together in a way that you can inventory, optimize like you couldn't before. So if you can understand demand, get even better at forecasting with today's forecasting tools, and then have a supply chain that's got data algorithms and robotics in it, you can take costs out of the system that we've not ever been able to take out before. That's a multi-year investment journey. 

He concluded: 

It's something that we're really excited about. That has to happen in conjunction with the business model changing. So the thread that runs from, let's build an e-commerce business; as part of that marketplace, we can get paid to operate a marketplace and people want to buy fulfillment services. In fact, a lot of people want to buy fulfillment services and they want to have sales, so they're willing to buy an ad. The thread that runs from omni-channel to all of those things is a very strong thread that is being pulled through as we speak. And so that business model remixing happens in parallel with the automation of the supply chain and ends up with a different business model, which we’re excited about.

My take

Big retailer, big plans, big ambitions, big challenges ahead in an unstable economy.