Walmart’s Top 6 New Growth Opportunities
As time passes and a business gets older it often struggles to stay relevant. Strategies that were once successful start to look dated. Customers turn away in search of the new hot thing. But Walmart, which turns 60 next year, still looks like a retailer at the top of its game. It is the largest retailer in the world and last year in the middle of a pandemic it outperformed many of its competitors with eCommerce sales up 69% and its same store sales up 8.6% in the fourth quarter of 2020.
Despite its success, Walmart is not resting on its laurels, instead it is aggressively moving towards a number of growth opportunities. Many of these opportunities will seem eerily familiar because they are areas that Amazon foraged into a number of years ago with success. But in areas like social commerce, Walmart is taking the lead, at least in North America. If you are curious about what Walmart is up to consider these six initiatives.
1. Advertising. Digital advertising is a large opportunity with total digital ad revenues reaching an estimated $135 billion in the United States in 2020. This market has long been dominated by two tech giants, Google, with a 29.4% share and Facebook with a 23.4% share. But retailers now have this lucrative business within their sights.
Amazon is the first retailer to take a real shot at the Facebook-Google advertising duopoly. Over the last several years Amazon has created an advertising business worth an estimated $14.6 billion in sales making it the third largest digital advertiser in the United States with an 10.2% share. While Amazon’s ad sales are strong the margins are even better, much higher than its core retail business.
Recognizing Amazon’s lead in this area, in 2018 Walmart’s CEO Doug McMillon said: “we have a tiny ad business. It could be bigger.” Fast forward a few years and Walmart’s digital advertising business is still small but Walmart is committed to growing it. You have likely started to see more sponsored ads for products while shopping on walmart.com. It’s a natural fit to see these ads as you shop especially for shoppers that are used to seeing them on websites like amazon.com.
To boost its advertising business in 2019 Walmart purchased advertising technology start-up Polymorph Labs. The startup’s custom developed technology platform including its high-speed ad sever will allow companies wishing to advertise on walmart.com to better target visitors based on their actual shopping patterns. This is a selling point since retailers argue that: “Facebook might know what your customers like, and Google might know what they want, but only we know what they actually buy.” Walmart’s ad business generated an estimated $1 billion in 2020.
Walmart is ambitious hoping to grow its ad business by a factor of 10 over the next five years.
2. Social commerce. Social commerce is eCommerce that takes place on social media and it is seen as one of the next big shifts in the way we shop in North America. China is leading the wave with social commerce sales expected to reach $363 billion in China in 2021. One of the apps facilitating the growth of social commerce is Douyin. If you are not familiar with Douyin then most certainly you have heard of Douyin’s English equivalent, TikTok, which is also owned by ByteDance. Chinese consumers enjoy shopping while on Douyin, generating an estimated gross merchandise volume worth $72 billion on the app in 2020.
Douyin’s success with social commerce is one of the reasons why Walmart is investing in TikTok. “If you're watching a TikTok video and somebody's got a piece of apparel or an item on it that you really like, what if you could just quickly purchase that item,” says McMillon. “That's what we're seeing happen in countries around the world. And it's intriguing to us, and we would like to be part of it.”
Walmart is already working with TikTok to test social commerce in the United States. On December 18th Walmart hosted the first shoppable event on TikTok. The hour long event was called: the Holiday Shop-Along Spectacular. During the live event popular TikTok creators marketed Walmart products. Users participating in the event were able to buy products featured during the event without leaving the app. With over 100 million users on TikTok each month the hope is to attract a younger audience that typically does not shop at Walmart.
3. Walmart.com’s Marketplace. Amazon, eBay and Alibaba’s Tmall are all examples of popular online marketplaces. These marketplaces allow even the smallest of merchants to sell products and services to a large audience.
As Amazon has grown, its third-party marketplace has become a key growth driver with approximately 60% of Amazon’s eCommerce sales coming from third-party sellers. Walmart is quite far behind Amazon in terms of its own third-party marketplace but it is focused on growing it.
To increase marketplace sales Walmart is offering marketplace sellers with services to make their job easier. One of those services is Walmart Fulfillment Services which launched last year. This service allows sellers to transfer responsibility for logistics activities like picking, packing and shipping to Walmart so they don’t have to conduct these activities themselves.
Walmart also announced a partnership with Shopify last year that allows select Shopify merchants to easily list their products on Walmart’s marketplace. “We wanted to ensure all our merchants had access to [Walmart’s] audience,” says Shopify’s Head of Retail, Ian Black. “In a way that’s as simple as using the Shopify platform.”
In the second quarter of 2020 Walmart’s marketplace sales were up in the triple digits, growing faster than its first-party eCommerce business which was up 97%. Growth in marketplace sales have also had a positive impact on Walmart’s margins. Margins are higher within its third-party marketplace business because Walmart charges sellers a fee to list their products on its site and once a product is sold the marginal cost of that sale is low.
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4. Walmart+. Last September Walmart launched a subscription delivery service called Walmart+. The new service is $98 per year. Members of Walmart+ receive unlimited free next day and two-day shipping with no order minimum. Subscribers also receive discounts on gas and can skip the checkout line in-store by using Walmart’s Scan and Go app on their mobile phone.
It is estimated that by November of last year 19 million households had signed up for Walmart+. The service has the potential to attract millions of shoppers and will generate a consistent stream of recurring revenue. “Over time, more and more of our customers will want Walmart+ because it makes life better. That relationship will drive repeat business and provide data that enables us to serve them even better and be more personalized. It's an important piece of our strategy,” says McMillion.
Increasingly companies are turning to subscription models to attract new customers and lock in revenue. Walmart is no different in its quest to build a subscription program that is focused on eCommerce shipping right now but will expand in a way that enhances customer loyalty over time.
5. Healthcare. In 2019 Walmart opened its first Walmart Health a healthcare clinic. The clinic provides a number of services including primary care, dental services, counselling sessions, laboratory work, X-rays and audiology. Past attempts at healthcare clinics have not worked out for Walmart but the retailer hopes that it has gotten it right this time.
“Walmart is committed to making healthcare more affordable and accessible for customers in the communities we serve,” says a Walmart spokesperson. “The new Walmart Health centre in our Dallas, Georgia, store will provide low, transparent pricing for key health services for local customers.” Walmart has extended its low-price strategy to Walmart Health with a primary care appointment costing only $40 and a dental appointment costing only $25. Walmart plans to have 35 of these clinics by the end of 2021.
Walmart continued its move into the healthcare sector last year by launching Walmart Insurance Services, a licensed insurance brokerage that sells health insurance. “We acknowledge scaling Walmart Insurance Services and other various health care initiatives will take time, but once scaled we anticipate management will look to integrate some into its recently launched Walmart+ membership program,” says Cowen & Co. analyst Oliver Chen. “We believe these health care services would distinguish Walmart from competitors.”
$3.6 trillion is spent each year in the United States on Healthcare and Walmart is trying to get its fair share. This is yet another service that will help the top and bottom line as well as drive even more traffic into Walmart’s stores.
6. Fintech. Walmart is also creating a fintech company in partnership with Ribbit Capital, a venture capital firm that has invested in Robinhood. This new startup will create affordable financial products for Walmart’s customers. Fintech or financial technology companies provide consumers with a way to conduct core banking activities such as saving, borrowing and investing either online or via phone without needing a relationship with a traditional bank.
In a display of how serious Walmart is about fintech it recently hired two Goldman Saks bankers, Omer Ismail, who leads Goldman’s consumer bank, and David Stark, another top banker to work on the initiative. As Bloomberg writes: “the audacious poaching punctuates years of warnings by bank leaders that their industry faces tough new challengers, after regulators smoothed the way for corporate giants and Silicon Valley to expand into payments and other services.”
This is not Walmart’s first foray into financial services it already offers prepaid debt and credit cards and provides customers with the ability to cash checks, make money transfers and finance purchases in installments. This new opportunity is significant because Walmart will have an edge in the crowded fintech space. With nearly 5,000 Walmart stores and close to 600 Sam's Club stores in the United States it will have more than enough real estate to market to its customers.
Walmart won’t have to rely nearly as much on costly digital advertising to drive sales as many of its competitors do.