Walmart (NYSE: WMT), the largest physical retailer based in the United States, has achieved enormous growth over the years through its EDLP pricing strategy and a customer-friendly brand image. In recent years, the company has focused on digitalization to grow sales and improve customer service. Its e-commerce sales have continued to strengthen worldwide.
Physical retailers in the US are turning to digitalization to serve their customers better, whose lifestyles are now heavily influenced by digital technology. Walmart acquired the Indian online retail brand Flipkart in 2018. Since then, it has also made a significant investment in its US e-commerce infrastructure.
While investing in technology is essential for retailers to serve their customers more efficiently, Amazon’s growing influence in the retail industry has also proved to be a key driver of digitalization across the US-based retail brands. The need to focus on digital technology was never more highlighted than during the pandemic. Customer behavior changed profoundly with the spread of the Covid-19 pandemic. Customers mostly switched to online shopping during lockdowns. These changes will last longer since the impact on people’s lifestyle has been profound.
Walmart has been investing in e-commerce over the past several years and is reaping its benefits now. However, Walmart’s focus is not just on e-commerce but on a complete digital transformation that drives superior associate performance while driving higher customer satisfaction also apart from stronger financial returns. Cloud technology is driving similar transformations across other retailers too. Walmart is leveraging cloud technology to strengthen its competitive position and accelerate its growth momentum.
Back in 2018, Walmart partnered with Microsoft to accelerate its cloud journey and more expeditiously deliver on changing customer expectations. Walmart’s digital transformation has also come in the face of growing competitive pressure from the e-commerce giant Amazon. From its online store to supply chain and logistics, digital technology, AI, IoT, and Machine Learning are driving rapid changes. Walmart’s continuous growth in the future depends on its ability to leverage technology to swiftly respond to the changing market scenario and customers’ purchasing habits.
Factors that drove rapid digitalization at Walmart.
Walmart is the largest physical retailer in the United States. The company has been enjoying enormous growth over the last several years. However, the retail landscape in the United States is changing swiftly. Five main factors drove digitalization at Walmart:
- Demographic changes in the US population.
- Changing consumer habits and expectations.
- Rise of mobile computing.
- Need for more speed and efficiency.
- Growing challenge from Amazon
Demographic changes and other changes like the rise of e-commerce has also changed how people shopped. Since the retail landscape is changing, Walmart’s traditional operating model was insufficient to serve the customers’ evolving needs in the US. Millennials are now the largest segment of the US adult population (Pew Research, 2020).
They are also the most important customer segment for retail brands like Walmart. The expectations of the millennial generation are very different from the Baby Boomers. The millennials are tech savvier and live highly digital lives. They like to shop online for a large range of products and services. Apart from their general needs, these people also depend on online channels for their daily entertainment and various other needs like music and fashion.
The rise of social media and the millennials’ consumption habits all required the businesses that wanted to serve them to adopt a better model driven by technology. Walmart’s competitive moat lay in its pricing strategy mainly apart from the large array of products it sells. However, these things are no longer sufficient to cater to the millennial generation’s expectations fully. Walmart needed to transition to a better model that could handle things with higher speed and efficiency.
Both these things are important for maximizing customer satisfaction in an era driven by computers, the internet, data and analytics. The dependence of retail brands on technology was also destined to grow because of the growing use of mobile computing. The need for higher mobility also drove higher investment into technology. Digital technology has altered the buying habits of the customers, who like to compare prices on their smartphones before they go for the final purchase.
Lower prices attract the millennials but there are more factors they consider before making a purchase. Customer convenience matters more than ever to win in a highly competitive retail landscape. It affects demand and sales. However, to grow the level of customer convenience requires a focus on digital technology which saves time and also helps reduce costs.
Another important factor that drove Walmart towards rapid digitalization was the rise of the e-commerce giant Amazon. Prior to that, Walmart was the undisputed leader in the US retail sector. Amazon is right next to Walmart on the Fortune 500 list, where the physical retail giant has managed to remain at the top for several years. In 2020, Walmart is on the top of the list for the eighth time (Fortune, 2020).
In terms of e-commerce sales in the US, Walmart is just next to Amazon (despite the substantial gap). There is still a substantial difference in the market shares of the two in the e-commerce industry but Walmart is trying to strengthen its position through continuous investment in digital technology. Amazon poses a major challenge before the other US-based retailers whose continuous growth now depends on how well they can serve their tech-savvy consumers.
The drive towards a highly digital future has accelerated with the pandemic. People’s buying habits are being reshaped, and consumers will likely depend more on online shopping in the future. Walmart needed to take Amazon’s challenge since, over time, Walmart’s influence could substantially reduce due to the growth in Amazon’s, which is aggressively demanding lower prices from its sellers using its clout in e-commerce. Leveraging its existing competitive strengths for superior results was only possible if Walmart invested in digitalization.
Supply chain digitalization at Walmart
Walmart has focused on higher digitalization in nearly all areas of its business system. From the supply chain to sales, customer service, marketing, and store operations, the company has steadily been investing in digitalization to grow its operational efficiency and cost-efficiency. Walmart’s supply chain digitalization was an important pillar of its omnichannel strategy.
Digitalizing the supply chain was the first important step towards making its omnichannel strategy a success. To really gain from its investment in technology and digitalization, Walmart first needed to leverage the strength of its supply chain. A highly optimized supply chain is a critical source of competitive advantage for the retail brand. It has helped Walmart maintain consistently lower prices and could be further optimized using digital tools to gain higher cost-efficiency and derive better employee performance.
Moreover, the traditional supply chain management model was insufficient to serve the evolving needs of US customers. Digitalizing the supply chain has enabled the retail giant to pursue its omnichannel strategy with a higher success rate. Walmart is leveraging digital technology to share information across the supply chain, and for tracking and managing inventory across its stores and warehouses in the United States.
An efficient and modernized supply chain has played a critical role in helping the company gain higher cost-efficiency. Walmart’s competitive position as the leading physical retailer in the US has strengthened with growing digitalization across its supply chain, which also helped it access a large pool of data. It gains valuable insights from the data to understand consumer behavior. Walmart’s large supply chain produces tons of data daily used to make important inventory management decisions. It also helped the company grow its supply chain resilience to serve customer needs better during a crisis like a hurricane or in the event of a pandemic like Coronavirus.
Walmart also secured its supply chain against fast-changing market conditions by leveraging data and analytics. In 2017, it invested in Data Cafe, one of the largest private clouds in the world to grow its data and analytics capabilities and process more than 40 Petabytes of data being generated from internal and external sources daily (Marr, 2017). Walmart’s data cafe is its analytics hub located at its headquarters in Bentonville, Arkansas. Data Cafe allows Walmart to model, manipulate, and visualize recent transactional data, it collects from more than 200 internal and external streams.
It enabled faster decision making at Walmart and provided solutions to several critical supply chain management related problems that could otherwise take a lot longer to answer. Walmart made Data Cafe available to its suppliers so they could gain free insights into customer demand and manage their supply and inventory better.
In 2018, Walmart introduced its Connected Content Provider Program, whose main focus was to help suppliers scale content to Walmart’s catalog and other retailers (Ogura, 2018). The program aimed to bring harmony between retailers, suppliers, and content. With its syndication partners like Salsify, the company aimed to help its suppliers deliver content with higher speed and agility. Suppose a customer comes to Walmart looking for a particular product that is not available at the time. Walmart looks up its syndication providers like ‘Salsify’ to find which supplier has the product and then arranges for home delivery.
Walmart is also using other latest technologies like AI and Blockchain to track inventory down its supply chain (Aitken, 2017). The retail brand partnered with IBM to leverage blockchain technology and leverage and track food products’ movement across its supply chain to ensure their quality and authenticity. The use of IBM blockchain allowed Walmart to track the movement of goods in its supply chain faster. Something that could take days or weeks to trace using the traditional tracking methods was now possible in seconds. Blockchain-based decentralized ledgers have simplified the process of tracking goods in Walmart’s supply chain.
Digital Transformation through Cloud Technology
Cloud technology is also driving rapid transformation across the retail landscape. Retailers turn to cloud technologies to grow their efficiency and transform a large pool of data they generate daily into actionable insights.
In 2018, when Walmart was already using a large set of Microsoft services for critical workloads, the company announced a strategic five-year partnership with the cloud leader to make its digital transformation possible. This partnership with Microsoft allowed Walmart to leverage machine learning, artificial intelligence, and data platform solutions for a wide range of external customer-facing services and internal business applications (Walmart, 2018).
Walmart aimed to transform digitally, bring innovations that saved its customers time and money, and change how work was carried out inside the organization for increased productivity. To achieve its target, the company selected a full range of Microsoft cloud solutions that included Microsoft Azure and Microsoft 365. The main advantages of using cloud technology for Walmart were going to be as follows:
- Leverage the capacity of Microsoft’s enormous compute capacity.
- Ability to manage workloads seamlessly in an elastic environment.
- Bring innovations faster through the new toolsets
- Drive costs lower through a cloud native environment.
From reducing energy consumption in the Walmart stores to managing logistics, the company uses cloud technology to make its work processes more efficient and save time and money. The company uses machine learning to route thousands of trucks in its supply chain. Apart from that, Walmart gained access to various tools that allow its associates to improve their productivity and collaborate on projects. Tools like Microsoft workplace analytics, Microsoft Stream, and Microsoft One Drive allow associates to collaborate, save time, and work better.
Walmart owned Jet.com also uses cloud technologies heavily to serve customers efficiently. It has built an innovative eCommerce engine on the Azure cloud platform in less than 12 months. The Jet.com platform is composed of open-source software, Visual F#, and Azure Platform as a service (PaaS) like Azure Cosmos DB. The next-generation architecture of Jet.com is built for speed. It uses Panther, Azure’s next-generation inventory processing system to make its service faster, smarter, and more efficient.
“Within just a few weeks, a prototype based on Service Fabric proved that Panther could support the massive scale and the functionality Jet needed plus high availability and blazing fast performance across multiple regions. But what really made Panther possible was adding Azure Cosmos DB for the event store. Coupling an event-sourcing pattern with a microservices-based architecture gave them the flexibility they needed to keep improving Jet.com and delight their customers.”(Microsoft, 2020)
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Aitken, R. (2017). IBM Forges Blockchain Collaboration With Nestlé & Walmart In Global Food Safety. Forbes. Retrieved 2020, from https://www.forbes.com/sites/rogeraitken/2017/08/22/ibm-forges-blockchain-collaboration-with-nestle-walmart-for-global-food-safety/?sh=66710fac3d36
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