To compete with Amazon, Walmart should cut itself in half

To compete with Amazon, Walmart should cut itself in half

This article first appeared in Tech Crunch

Walmart’s latest earnings report wasn’t pretty. Overall revenue growth came in at a tepid 0.7 percent for the first half of the fiscal year. Its e-commerce sales grew 11.8 percent, but the total e-commerce market is tearing ahead at 15 percent quarterly growth, which means they’re actively losing that market. Oh, and it bought, a massively unprofitable e-commerce vendor, for $3.3 billion to make up for it. So how did the market react? Walmart’s stock spiked 3 percent. I guess in today’s retail market, you win by not losing.

It’s hard to imagine a world without Walmart. Ninety percent of all Americans live within 20 minutes of a Wal-Mart store. They have over 1.5 million employees at 5000 stores, and serve over 140 million shoppers a week. But the too-little-too-late move by Walmart to acquire is yet another signal that we are witnessing the downward spiral of a $230 billion company. A world without Walmart is now not only possible, but likely, unless it makes some big moves soon.

So here’s an idea: Turn half of those superstores into integrated online fulfillment centers, with local pickup and delivery services, but no more customers walking through the front door. That’s the only way Walmart is going to find out who its customers really are.

I get it. Brick-and-mortar infrastructure is vastly different from e-commerce infrastructure. You don’t just flip a few switches and turn a giant retail store into a provisioning warehouse (though you could argue that most big box stores are just huge, confusing warehouses anyway).

But Walmart needs to triage its general merchandise business now, before it winds up dying on the vine with the rest of the retail market. And the best way to know your customer is over the internet. Retail needs to flip the script — the online experience has to come first.

Right now e-commerce might represent only 10 percent of total retail sales, but in 10 years, is anyone going to be driving five miles to a supercenter to buy toothpaste and shampoo? Walmart needs to make some systemic changes soon in order to challenge Amazon’s real killer IP — customer insight.

Walmart has been selling online for the last 15 years. But Walmart doesn’t know anything about you when you walk into one of its superstores. It’s got some pick-up delivery options and some loyalty payment gateways, but e-commerce is still just 3 percent of its business.

Today over half of American households subscribe to Amazon Prime. Now, what does Amazon know about its customers? Everything. It knows the entirety of their browsing activity and their purchase history (the first book you ever ordered on Amazon is sitting right there in your order history – go look it up). Also note that Amazon currently has two-hour delivery in two dozen metropolitan areas, and same-day delivery in many more. Today’s novelty services will become tomorrow’s table stakes.

Amazon doesn’t deal in customer segments; it deals in customers.

All that helps explain why it recently became the world’s fourth-largest public company, joining Apple, Alphabet and Microsoft, and kicking Exxon Mobil down the list. It’s not a coincidence that those first four companies are hugely successful at wrapping ongoing services around unique subscriber IDs, while the fifth one sells you gas. Walmart is trying to buy itself into that subscriber ID club with, but it’s too little, too late.

Today’s consumers are looking for more than coupons, free samples, and blue light specials. They expect businesses to know them, understand their needs, and build customized offerings and services around this knowledge so they can have the products they want, when they want them, and how they want them. They want products to just happen.

Walmart needs to start orienting itself around a future in which e-commerce will become the dominant retail channel. It needs to start learning who its customers are. It needs to put those greeters in delivery vans.

For more on Amazon’s winning strategies, check out our guide- Going Global: Lessons from Amazon

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