Features, The New Rules of Retail

Walmart As a “Long Tail” Marketplace

For anyone who remains skeptical about Walmart’s understanding of how they must transform their business model and their ability to do so, let’s set the record straight. It’s astounding how quickly this enormous “battleship” has changed course. If you understand the theory put forth in Chris Anderson’s book, The Long Tail: Why the Future of Business is Selling Less of More, you will acknowledge that Walmart is creating its own long-tail marketplace. Full disclosure: This systematic acquisition strategy and forward thinking is exactly why I began suggesting over a year ago that Walmart will either crush Amazon, or at the very least, become its biggest nightmare.

The mass production and mass markets of the 20th century are giving way to demassification and the fragmentation of the marketplace into millions of small niches. According to Anderson, as the costs of production and distribution fall, especially online, “there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly targeted goods and services can be as economically attractive as mainstream fare. When consumers are offered infinite choice (which is an understatement in the retail industry), the true shape of demand is revealed. And it turns out to be less hit-centric than we thought. People gravitate towards niches because they satisfy narrow interests better, and in one aspect of our life or another, we all have some narrow interest (whether we think of it that way or not).”

And from what I’m hearing and seeing of Walmart’s continuing stream of initiatives—including its acquisitions, which are also bringing new skills and knowledge into its organization—it appears to me that the long tail is exactly what they are building. They are acquiring key market niches, and while Walmart will remain the mother ship, it is just another market niche at the head of the long tail, albeit a big niche.

Bold Moves by a Young CEO

Like all such profound business shifts, they have to start at the very top. At Walmart, it starts with CEO Doug McMillon’s future vision, embracing his understanding of the shifting consumer culture along with the seismic shift in the structure and dynamics of the technology-driven marketplace. Based on Walmart’s recent major initiatives, it’s apparent to me that McMillon must have had some bold discussions with the Board and his management team to seek, and win, their buy-in for his vision.

Whatever those bold discussions were, I’m sure they were reflective of his comments at Walmart’s annual shareholder meeting. He talked about “modular accuracy” with a new app they developed, machine learning and personalization. “Tech is changing what customers expect and how they shop. The next verse in our song is about them, our customers. They are the reason we have jobs. If we don’t get ahead of where they’re going they’ll choose to shop somewhere else. So where are they headed? They’ve always wanted the best prices, they want value for their hard-earned money, and they should, and they want great merchandise, high quality, something new, something just flat-out awesome. And today, more than ever, customers expect, they deserve, to save time. Time is a currency like money. They want an easy, enjoyable experience without friction. The historic trade-off between price and service doesn’t exist anymore. We’re creating a better shopping experience and a better work experience for ourselves as we strive to serve them.

“We have tests going on with digital endless-aisle shopping, automated pick-up towers in stores, automated pick-up stations in the parking lot, robotics and image analytics scanning aisles for outs, block chain for food safety, and machine learning in our pricing systems to assist merchants.”

Walmart describes their forward-thinking acquisition strategy as: “In addition to growing our team organically, @WalmartLabs has acquired businesses that help us grow our expertise to build best-in-class e-commerce technologies and talent. These partners, combined with the assets of the world’s biggest retailer, empower us to deliver a unique customer experience.” Well okay, then.

Of course, McMillon’s boldest move, illuminating his commitment to transform Walmart, is the acquisition of Jet.com for about $3.5 billion. This included its founder and technology/e-commerce genius, Marc Lore, who was given the title of president and CEO of Walmart eCommerce U.S. His authority includes the previously acquired Moosejaw, Modcloth.com, and Shoebuy.com, along with Jet.com’s earlier acquisition of Hayneedle.com. And not long after his arrival, Walmart acquired Bonobos, including its brilliant founder in all things “technology,” Andy Dunn, who heads up Walmart’s digitally native vertical brands including Bonobos and ModCloth. He also brought in Rent the Runway co-founder Jenny Fleiss, as part of the Code 8 startup project. Most recently, there is speculation that Walmart is interested in acquiring beauty subscription service Birchbox.

Most recently, Walmart joined the newly emerging world of conversational commerce by signing a deal to partner with Google Express, Google’s voice activated virtual assistant. Google Express is the major competitor to Amazon’s Echo. Unlike Target, Costco and Walgreen’s, among others, who also participate with Google Express allowing third-party fulfilment of their orders, Walmart will do its own fulfilment. Google is also a fierce Amazon combatant on several fronts. So, Walmart and Google will create a powerful synergy that will give Jeff Bezos another headache.

The gain for Google from this deal will be the purchase histories of Walmart shoppers. This enormous fount of data will be fodder for Google’s renowned artificial intelligence, which will turn that data into another weapon. Specifically, it will provide Google (and Amazon) another giant step towards personalization, which has been one of Amazon’s major competitive advantages. Google and Walmart will be able to personalize advertising, shopping experiences, and other marketing efforts.

Another out-of-the-box idea may emanate out of Walmart’s recently obtained patent for a blimp floating in the sky, which would act as a distribution center. Drones would be deployed from this aerial distribution center to deliver orders. This is no “pie in the sky” vision.

The Long Tail Comes of Age

Lore’s Jet.com also brought younger, more affluent consumers to Walmart—a new niche opportunity. This also opened the door for Lore to push Walmart to seek other long-tail niche markets, including higher-priced products and designer brands. As reported in WWD, Lore said during a Baird Global Consumer, Technology and Services conference, “We’re doing acquisitions primarily in specialty areas that can help accelerate our business in long-tail categories. They’re the high-margin categories where we’ve made a couple of acquisitions already.” He went on to say, “Small specialty players such as Modcloth can help accelerate our entry into the long tail (there’s that term again) and give us access to product you can’t find anywhere else. We’ve gotten access to relationships with thousands of brands with really rich product content and pictures. That helps elevate the positioning of Walmart and Jet and also comes with great margins. I think a lot of the heavy lifting is going to be creating really specialized shopping experiences by micro-category,” Lore added. “We’ve perfected all the details. Now we’re hiring specialists focused on very narrow categories and just trying to crush it.”

And now with Andy Dunn, who might be considered a soul mate in Lore’s thinking and vision regarding the long tail, I expect we will see an acceleration of Walmart becoming kind of an acquisitive Pac-Man. But forget about stopping there. Dunn brought with him a list of 86 digitally native brands, which will come under his spotlight to determine best potential long tail niches to pursue for acquisition. And Lore said that recently unveiled Store No. 8 (Walmart’s innovative incubator), “will work with startups that specialize in areas that include robotics, virtual and augmented reality, machine learning and artificial intelligence.”

Not Just the Long Tail

Don’t mistake Walmart’s long tail move as replacing or diminishing the big box business. In fact, right off the bat, Lore saw Walmart’s advantage over Amazon and other pure e-players. I, too, have been beating that drum for a long time. Their roughly 4,700 stores can be used for both shopping and shipping. Furthermore, they crush Amazon’s frantic pursuit of improving the last mile delivery speed. There is a Walmart within 10 miles of 90 percent of U.S. consumers, while Amazon only has distribution centers, estimated to be within 20 miles to 40 percent of consumers. And you can’t shop in a distribution center, Lore reminded us at Shoptalk. He said, “Every day, I become more and more convinced about the omnichannel advantage.”

So, what to do with those big buildings piled high with mostly commoditized “everyday low price” stuff, offering a shopping experience that many view as a turn-off? They’ve got a plan for that as well.

McMillon and Lore see Walmart as a marketplace, a distribution platform. Lore said they are accelerating the addition of third-party sellers. And on Jet.com’s site one can now find dresses by Giorgio Armani Collezioni, Ralph Lauren, Alice + Olivia and Monique Lhuillier, with prices ranging from $250 to $800.

Dan Makoskiv is vice president of design at Walmart U.S. e-commerce. He worked at Microsoft, Google and Motorola before joining Walmart, and said, “We’re taking steps to create an environment in physical stores that’s a little more aspirational and easier to shop. It would be like walking into a store that could rearrange itself into the kind of aisles and products you’re interested in. There’s a little bit of personalization today. Of course, I want to make [stores] beautiful.” (WWD)

Need proof that the transformation is in progress? Take a look at designforlivingbetter.com, which is a Walmart design innovation lab. The team’s mission: “We strive to make ordinary moments extraordinary. We are equally passionate about hard data and the soft nuances of peoples’ lives. Our thirst for learning fuels simple, meaningful experiences, connecting all the dots through the power of design. We see homes as places where people create lives, not as a collection of items and consumers. We believe that the meaning of life is not to acquire things, but to have things enable meaningful experiences. Our designs save people time so they can spend it on what matters most.” The service invites professional designers, user-experience experts and systems thinkers to join Walmart to help improve the customer experience.

What else is new?

  • Walmart is testing new store concepts and design in two supercenters located in Tomball, Texas and Lake Nona, Florida. They were totally reimagined, from new layouts and environmental enhancements to new technologies enabling and enhancing the shopping experience. Trust me, “this is not your grandfather’s Walmart.”
  • They are also experimenting with adjacencies to make for an easier shopping experience. They are testing beauty salons next to beauty products; tech repair next to electronics; and baby, toys, kids’ apparel and kids’ shoes all in a single area.
  • For quicker checkout, they are testing their Scan & Go technology on smartphones and Walmart handheld devices. Scan & Go wands are presented as one enters the store. Easy-to-use digital produce scales are being initiated, and Scan & Go fast-pass checkout lanes do away with the traditional exit process.
  • SmartLife is a new interactive projection technology which educates customers about connected devices (like Google Home, Apple TV, Nest, baby monitors and IoT thermostats). This technology is in the entertainment section of the store, as well as in hardware, baby, and health and wellness for relevant department items.
  • Integrated pick-up allows shoppers to use the outside drive-thru to pick up not just their weekly groceries, but also their prescriptions and Walmart.com orders.
  • Interactive screens provide an expanded curated selection of online-only items in almost 100 categories. Customers can order products, pay with the rest of their basket at checkout and pick up two days later.
  • Another frictionless concept being tested is a kiosk where you can place an order; continue to shop and then return for quick pick-up.
  • Wi-Fi-connected call buttons and wearable GPS-enabled devices alert associates when assistance is needed. The associates wearing these devices are trained in specific merchandise expertise like furniture, paint, fabrics, sporting goods and bikes.

Amazon Beware

As Walmart’s online long-tail niches are expanded and rolled out, will they also be rolled into Walmart’s physical stores? Can those Walmart buildings be destinations for consumers to discover a variety of different products and services, including local artisanal goods, great experiences and even entertainment?

Why not?

If we agree that Amazon is a marketplace (not confined to a traditional definition of “retailing”) in which every product or service in the world, whatever business they may be in within all consumer segments, can be transacted, why can’t Walmart evolve to such a marketplace? And as has Lore said, Walmart has a huge advantage over Amazon because it already has those physical places for shopping, shipping and pick-up, and perhaps eventually as social and experiential gathering places.

So why not turn each one of those buildings into refreshing, innovative long-tail niche marketplaces? I’m just saying…

And I will say one more time and then over and over again, amen Amazon. That light you may see at the end of whatever tunnel you happen to be in is a train called Walmart/Jet.com hurtling toward you. And it’s accelerating so fast it’s going to smack you head-on with the force of the “behemoth of Bentonville.” Trust me, Walmart and its visionary leaders are going to continue to dominate the retail space in the 21st century.

Quake in your boots, Jeff.

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