Doug McMillon is out to show there’s a new Walmart — one as tech-savvy as its giant competitor, Amazon.
At the retailer’s investors annual meeting in Bentonville, Ark., on Tuesday, the president and chief executive officer and his team tacitly endorsed a Flipkart initial public offering, showed off tech-enabled SuperCenters, opened a new tech incubator in Austin, Tex., devoted to AI learning and touted omnichannel expansion in Mexico and China.
Technology and international were central themes of the meeting, while a lot of attention and time was spent on talking up the U.S. operations, where fewer than 10 stores are expected to open in fiscal-year 2020.
But above all else, McMillon was out to shake the stereotype of Walmart as a slow-moving behemoth weighed down by its traditional brick-and-mortar operations while its cooler rival Amazon spews out one innovative product or initiative after another. The ceo ticked off a list of initiatives that included:
• Piloting Spark, Walmart’s crowdsourcing for delivering orders, in four markets.
• Intelligent bots to free employees up so they can do more meaningful work.
• 700,000 virtual reality headsets used for associate training.
• Machine learning implemented across the enterprise.
• Operating tech hubs in 12 cities around the world.
• Hiring a team of behavioral scientists at Sam’s Club.
• Opportunistically expanding space for toys with dollars up for grabs following the liquidation of Toys ‘R’ Us.
• Announcing a partnership Tuesday with Advanced Auto Parts.
• Like Amazon, Walmart wants to become more enmeshed in consumers’ lives and last week forged a strategic venture with interactive video technology developer Eko to create original content with the goal of driving deeper and more frequent engagement with customers. Walmart also plans to leverage its Vudu platform, which it admitted has been underdeveloped.
“We had a proven model,” McMillon said. “There’s a business model shift that’s being architected. A year ago when we were sitting here we didn’t know we were going to go and do the Flipkart” deal, although he said there were discussions.
“The Flipkart ecosystem will help us win in India and teach us more about retail,” said McMillon.
Judith McKenna, president and ceo of Walmart International, said, “We’re supportive of an IPO, as is the Flipkart board. We’re not putting a timeline on it.”
Flipkart’s Myntra and Jabong e-commerce fashion sites are the market leaders in India. McKenna said Myntra’s style is exportable, and on Monday the brand was introduced in Canada on Walmart.ca. Myntra partners with celebrities for collections and launched an online shoe sizing device on its app.
Since Myntra and Jabong sell apparel, the margin is bigger, but how do they grow their business the healthy way over time, McKenna said. “How we think about margins versus SG&A? We’re not going to break that out, but they’re focused on every dollar — there’s not a rupee to waste in that business. They’re using data and AI to make them more efficient.”
With Amazon pushing into Mexico, Walmart last week revealed an investment in Cornershop, a leading online marketplace for on-demand delivery from supermarkets, pharmacies and specialty food retailers in Mexico and Chile.
“We continue to reimagine retail for the future in China,” McKenna said of the country, which has a population 1.4 billion. “We’ve been opening small, urban fulfillment centers tailored to Chinese families’ everyday needs and delivered to the customer in one hour. The opportunity in China is still significant.”
“If something came up in China that looked good, even with what’s going on politically, we’d consider it,” said McMillon of possible acquisitions there, sounding sanguine about the U.S. economy. “Interest rates ticked up and there’s mortgage pressure on customers that you didn’t have. The U.S. economy will cycle, it always does.”
Walmart reaffirmed its fiscal-year 2019 sales expectations and updated earnings per share guidance to reflect its investment in Flipkart in India. EPS generally accepted accounting principles guidance is now $2.65 to $2.80 and adjusted EPS guidance is $4.65 to $4.80, compared to previous guidance of $2.90 to $3.05, and $4.90 to $5.05, respectively.
The retail and e-commerce giant expects that same-store sales in the U.S. excluding fuel will grow 2.5 to 3 percent in fiscal 2019, following expected growth of 3 percent this year, which represented the fastest expansion in a decade. Comp-store sales rose 4.5 percent in the second quarter of fiscal 2019.
Walmart chief merchandising officer Steve Bratspies said the retailer’s performance in stores was led by fresh grocery in the second quarter, but the momentum extended to apparel. “We’re going to continue to innovate and invest,” he said. “Sales of our three new [private-label] apparel brands are accelerating.”
An increase in quality perception in apparel and Walmart’s private brand wine were also highlighted. “We’ve got a lot of product innovation,” he said. “We also have new national brands such as NYX Cosmetics, Yankee Candle, Cuisinart and Bose. The media business is also changing. We’ll have shoppable ad capability and partnerships. We’re creating great shopping experience by reimagining the store space with a new apparel pad and entertainment space” with interactive displays.”
Walmart U.S. E-commerce, which is on track to post a 40 percent increase this year, is expected to grow by 35 percent next year off of a much larger base, said Marc Lore, the unit’s ceo and founder of Walmart-owned Jet.com.
While the retail and e-commerce giant has been investing in retail partnerships and specialty acquisitions, it’s still an uphill battle, Lore admitted. “One of the biggest challenges we face is balancing the merchandise mix,” said Lore. “We haven’t made enough progress in the long tail [categories], and the most money is made in that long tail.”
While walmart.com would like to control more of the online shopping experience by transforming third-party sellers to first party, those vendors would allow walmart.com to increase the variety of products it offers and could become more reliable. But Lore said, “We can’t afford to bring product first party because the costs of holding products in distribution centers are too high. When you have the long tail [categories such as apparel,] it makes sense” because those margins are higher.
“When brands think about selling to us, they look at web site design, on-time delivery and the holistic offer.” The site’s customer value index scores are rising. “It’s a gradual improvement,” Lore said. “As you earn the business, you earn the brands.”
“Brands are finding that it’s really hard to scale [online],” Lore said in response to a question during the question-and-answer portion of the event. “They may have a good offer. In our case, we’ve got all this traffic. We can take a great assortment and great team, and while one of them doesn’t move the needle that much, doing them collectively would.
“We’re playing offense with digital native brands,” Lore said. “This year we incubated our own mattress company, Allswell. Elloquii, Bonobos and ModCloth are proprietary content. We’re thinking about sku parity, when everybody is selling the same thing for the same price. We continue to incubate, buy and build. The margins are incredible, they run at 40 percent, so we’re adding almost 200 basis points to the entire business.”
Brett Biggs, Walmart’s chief financial officer, pointed out that the company returned more than $34 billion to shareholders over the past two-and-a-half years. “Expect losses to increase some at Walmart U.S. e-Commerce. We’ve increased our investment in Store No. 8 [Walmart’s ring-fenced incubator of technology that could shape retail in the future]. Some investments in brands and merchandise mix will help. The $11 billion in cap ex for 2020 and allocation of capital will be similar to last year.”