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Don’t waste another dime on bloated channel reporting and vanity metrics.
Don’t waste another dime on bloated channel reporting and vanity metrics.
"We've got a business that's becoming increasingly digital," CEO Doug McMillon said.
Walmart detailed its digital shift on its latest earnings call.
Walmart broke out advertising revenue for the first time during its latest quarterly earnings report as leaders underscored the change that has taken place in the business over the last two years.
The company said its advertising business earned $2.1 billion in revenue in 2021, and said the number of advertisers on its retail media platform, called Walmart Connect, grew 130% year-over-year.
“We expect Walmart Connect to continue to scale over the next few years, with plans to become a top 10 ad business in the mid-term,” said CFO Brett Biggs.
The move to share advertising figures follows a similar disclosure by Amazon, which revealed it had a $31 billion advertising business, which is more revenue than YouTube.
While not as large as Amazon, Walmart’s advertising business is similarly tied he company’s ecommerce activities. McMillon said the growth of the advertising business will follow as the company’s ecommerce business expands. The earnings report showed that the Walmart US ecommerce business grew 11% in 2021 and 90% on a two-year stack.
“We've got a business that's becoming increasingly digital,” said CEO Doug McMillon. “The ecommerce business, first-party, third-party is growing. It gives us the opportunity to grow advertising income. It's grown at a fast rate, and it's growing across markets.”
When it comes to third party, the company added 20,000 new sellers to Marketplace in the US last year, and expects to add nearly 40,000 in 2022.
With the growth of ecommerce, Walmart’s stores are increasingly becoming “hybrid,” as they serve both the in-person experience and ecommerce business.
“The stores are stores, but they also act as fulfillment centers…So this ability to interact with customers digitally is important. Our workforce is becoming more digital,” Walmart US CEO John R. Furner said. “We've got over 1 million associates who have a device in their hands from the minute they walk in until they leave. So that’s saving them time.”
The company also has a subscription offering called Walmart+, and is expanding both in-home and last-mile community delivery service, the latter of which will grow from 1,000 to 5,000 pickup points this year.
“Having inventory so close to so many customers is a competitive advantage. In some cases, we're getting items to customers in hours, rather than days,” McMillon told analysts.
Focus on existing customers and fulfillment, said analyst Jordan Jewell.
Make operations a pillar.
We’ve lived through a time of economic swings in recent years.
Supply and demand crashed back and forth throughout the peak period of the pandemic, straining systems as it went. There were outward signs of the drama taking place for everyone. For supply, it was empty shelves, the Ever Given ship getting stuck or the massive queue of container ships off of the coast of Los Angeles. On the demand side, charts showing records in the form of exploding ecommerce sales, scores of venture capital dollars invested, and a rising stock market driven by tech and consumer companies were just as plentiful.
Inside the ecommerce businesses that were absorbing the shocks on the front lines, there was another swing that was taking place between growth and profitability, Jordan Jewell, the director of merchant strategy and analyst in residence at enterprise digital commerce platform VTEX, told The Current on the floor of the NRF Big Show 2023.
As Jewell writes in a new VTEX research paper there were three distinct eras of these two important business levers.
Heading into 2020 and the arrival of the pandemic, there was the era of the “old normal." Balance between growth and profits was evenly split. Still, ecommerce was something of a side project to brand and retail leaders during this time, with staffing and funding minimal.
By mid-2020, the era of growth at all costs began, the paper states. Ecommerce sales boomed, and even brick-and-mortar sales grew 5x in 2021 as compared to 2019. With business roaring for everyone, the goal was to get bigger.
But by the middle of 2022, a reset of shopping habits and 40-year-high inflation led to a new era of profitability. Brands and retailers faced a “hangover” when the growth era ended, Jewell said. On top of a pullback in demand, they faced a more expensive digital advertising environment and increased inventory levels.
It was time to look deeper at all of the new capabilities that just came online. As executives dug in, they moved to protect margins.
But again, there was a mismatch. Investments that were made in ecommerce during the growth era didn’t necessarily come with profitability in mind. There’s uncertainty among DTC brands about whether ecommerce is profitable, VTEX found, and a Publicis Sapient study showed that 37% say ecommerce isn’t meaning profit targets.
This presents a question for executives: Where’s the right place to invest now for profitability-minded brands and retailers with more limited options? That’s what Jewell set out to answer through this research. The paper identifies three bets to make:
Loyal and repeat customers keep coming back, and they may even spend more.
Existing customers can also be encouraged to return organically, through email, brand awareness and experience. This all drives profit higher.
That’s especially important to remember at a time when it is becoming more expensive to acquire new customers. There are more brands on social platforms. Privacy changes made targeting less efficient. And even as the proportion of budget spent on new acquisition goes up, returns can diminish.
“With each incremental ad you buy, you're reaching a customer who has a lower propensity to buy from you, because your core customer has probably already been found,” Jewell said.
On the other hand, an existing customer doesn’t require a new ad, and has already shown intent to shop with your brand.
While ecommerce received record investment during the pandemic’s height, brands are still developing capabilities.
VTEX found that 55% of brands are still in the early stages of the omnichannel maturity curve.
They are also still in the process of shifting strategy around these capabilities.
“For many brands and retailers, fulfillment, shipping, inventory and order management is viewed as a cost of doing business, not a core pillar of the business,” Jewell said.
For an example of what a difference adopting the pillar strategy can make, just look to Amazon. The company’s vast logistics network gets orders to customers fast and with reliability. That alone keeps them returning.
“It doesn't matter how good your site looks, it doesn't matter how good your email marketing is, it doesn't matter how good your customer service is. If you don't get a product to a consumer when they expect it, the whole customer experience is broken,” Jewell said. “They're very unlikely to come back.”
On ecommerce sites, don’t just optimize. Think bigger about different kinds of experiences that can help to stand out. Don’t just change the color of a button on your PDP. Add a live shopping video to guide a shopper on the journey. Pay attention to where shoppers are spending their time, such as chat platforms like WhatsApp or TikTok. The experiences they have there are drawing them back, and making it a delight to spend time there.
In the end, brands and retailers must strike a balance between getting the basics right and being bold. It’s not easy to do, especially as more channels appear and the requirements of each become particular, Jewell said.
But it helps to have pillars to base your work around, and that’s what VTEX’s research is seeking to provide.