Marketing, Retail Insights

Walmart Is Undergoing a Transformation: JetBlack Isn’t the Half of It

Walmart, the world’s largest retailer, is aggressively disrupting its established business seeking to establish a foundation for a future that puts no limits on the customers that it serves or the ways it serves them. As Robin Lewis so eloquently wrote, “Walmart is no longer a discount store. It is no longer defined as being a part of the ‘discount distribution channel.’ It is no longer limited to selling low-priced basic goods to lower income consumers.” Walmart refuses to stay in its box.

JetBlack, its new $600 per year personal shopping service for the well-heeled, time-starved wealthy shopper, is but the first sign of the radical new approach Walmart is taking to stay relevant in a retail landscape where the fastest-growing customer segment, the affluent, want what they want, when they want it. Money is no object.

JetBlack was conceived by Rent the Runway’s cofounder Jenny Fleiss, where she heads up Walmart’s Store Nº8 technology incubator. Store Nº8’s mission is to do nothing less than “Create the future of retail.” With a disruptive innovator like Ms. Fleiss at the helm, I expect Walmart to do just that.

Walmart Hears the Call for Retail Transformation

Walmart is undergoing a massive corporate makeover. With $500.3 billion in total revenues worldwide in 2018, 11,700 stores and 2.3 million associates, it is a long-term project that will is taking place on many fronts. Change and corporate transformation in its business and culture were CEO Doug McMillon’s primary theme in remarks at the June 1 Walmart Associate and Shareholders Meeting.

With the U.S. Walmart segment accounting for 64 percent of total sales, or $318.5 billion alone, including nearly 5,000 stores, as well as its e-commerce business, this is where the stakes are highest and its eventual transformation will be measured. By comparison no single corporate unit accounts for even as much as 1 percent of net sales.

At this past January’s National Retail Federation Big Show, where McMillon was honored as The Visionary at the NRF Foundation Gala, he told the story of the company’s awakening to the need for change. “At some point, Walmart became big and societal expectations changed. And we missed the memo.”

But it wasn’t just societal changes that Walmart missed, but demographic shifts as well. Its core customer base of lower-to-middle income consumers are losing ground to higher-income consumers with greater spending power and much higher expectations of what they want when doing business with a company like Walmart.

Driven by Necessity

From 2012 to 2016 the number of U.S. households grew by a mere 3.1% percent, from 122.4 to 126.2 million, but most of that growth has been in the higher-income $100,000+ segment, according to the latest census.

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While the number of lower-income, under $50,000 households declined by nearly 6 percent over the past four years and the middle-income households only advanced 2.4percent, those at the top rose 22 percent.
Walmart’s average customer has an income of only $56,482, according to Kanter Retail, so its core customer base is shrinking. It simply has no choice but to figure out ways to entice the more affluent customers whose income has outgrown Walmart’s basic marketing message of “Everyday Low Prices (EDLP).” By necessity, it has to align with affluent consumers.

Upmarket Move from Mass to Class

In describing the new Walmart, McMillon continually refers to it as a “technology company.” In its first moves upmarket, tech has been its the primary vehicle. It got a jumpstart in expanding its e-commerce platform with the acquisition of Jet.com in 2016 which brought over tech-entrepreneur Marc Lore to head up Walmart’s digital division. With hayneedle.com, shoes.com, moosejaw.com, modcloth.com, bonobos.com and the new bedding site allswell.com added in with jet.com and walmart.com, e-commerce accounts for $11.8 billion in sales, a mere drop in the bucket.

Just added to Walmart’s e-commerce platform is a new premium brand shop under partnership with Lord & Taylor. This greatly expands Walmart’s brand width to include 125 luxury-leaning fashion brands. Denise Incandela heads up Walmart’s digital fashion group and she comes with impressive luxury-fashion credentials after serving as president global digital at Ralph Lauren and EVP and CMO at Saks Fifth Avenue.
Selections on the walmart.com premium brands shop are in keeping with Walmart’s more affordable prices and far less extensive than found on the lordandtaylor.com site. It is, however, an interesting partnership, but whether it will move the needle for either company is a question.

Lord and Taylor as a brand sits uncomfortably in the lagging department store sector and somewhere in the middle ground between Macy’s at mass and Nordstrom, Saks, Bloomingdales, Neiman Marcus in class. And if we’ve learned nothing else in the current retail market, being in the middle is the last place any brand wants to be.

Time Saved is Money Earned

For the affluent shopper, time is money. JetBlack answers that — but that isn’t all. Walmart has been working overtime to make shopping time efficient. Two-day delivery, curbside pickup and more self-checkout stations, where it is tapping the expertise of Microsoft to perfect automatic checkout, are designed to giving customers fast, efficient access to its product range and cost-saving.

A new home installation and assembly for furniture and entertainment systems through the Handy home services provider also makes these expensive purchases more appealing to time-starved affluents.

New Corporate Consciousness

In recognizing that retail is now a people-first business, much of McMillon’s focus for the company is to rehabilitate its tarnished reputation as a corporate citizen and an employer. To this end, the company has been very proactive, raising hourly wages, expanding maternity benefits and it just announced a program to subsidize the cost of a two- and four-year degree program in Business and Supply Chain Management through a partnership with Guild Education and three universities.

By taking better care of its employees, the company hopes they will take better care of the 270 million customers served each week. And by supporting its workers, it is also supporting the many communities where those workers live. At the shareholders meeting, McMillon explained how Walmart is working to strengthen the local communities it serves, through support of neighborhoods affected by natural disasters, sustainable sourcing of products, and deploying renewable energy.

“The people we serve in communities not only trust us to be there when disaster strikes. They also want to feel good about our social and environmental impact and trust the products we sell are good for their kids and the planet,” he stated.

By raising the corporate consciousness of Walmart, it will position the company in line with the values of the affluent who demand such high standards from the companies they do business with.

A New Upwardly-Mobile Walmart?

Walmart has very publicly committed itself to change. “Meaningful change is rarely easy but it’s essential for success in the future,” McMillon said at the shareholders meeting. Part of that change has to be to cultivate a more affluent customer, one who isn’t going to be easy to attract to its local Supercenter stores, which account for 75 percent of its U.S. storefronts.

Looking from the outside in, I see Walmart’s current efforts to appeal to higher-income customers baby steps in a bigger strategy down the road. The company’s basic DNA still is “Everyday Low Prices,” not every day great value or everyday great service or everyday great quality, which is what affluent consumers are looking for.

To succeed in marketing to the affluent, the culture built on EDLP has to change. But there still are plenty of people that Walmart serves that need the low prices that it offers. It will be a very challenging tightrope for the company to walk.

At the same time, Walmart has the resources in place to make crossing the divide from mass to class possible in its dream team of retail tech visionaries Marc Lore, Denise Incandela, Jenny Fleiss and Andy Dunn (bonobos.com). They have only been in their roles at Walmart for a short time, barely long enough to begin to figure out the complexities of a corporate structure the size of Walmart. If they stay around long enough to chart the waters, and don’t bail too soon as ModCloth CEO Matt Kaness did after only one year, I think Walmart is in good position to turn its upmarket dreams into a reality.

The secret is technology applied to all aspects of its business, as Robin Lewis points out, “Walmart is a platform, not a store or a discount distribution channel.” As a platform, Walmart is not limited to its old Supercenter box off the highway. It has a much bigger highway – the information highway – that stretches across the world.

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