Do or Die? Walmart鈥檚 foray into Machine-Learning and the implications for Its competitiveness amidst the Amazonian squeeze
Will machine-learning be the tie-breaker in this new dawn of consumer retail?
Adapting in the Face of Adversity
Over the past decade, a fierce battle has been brewing globally within the consumer retail space. Internet giants like Amazon have continued to amass market share at the expense of established brick-and-mortar players, as the marketplace has evolved to become increasingly digital [1]. Walmart, by virtue of its vast financial resources, strong e-commerce presence, and extensive retail logistics infrastructure, is in the process of mounting its own digital challenge by employing various leading-edge technology analytics applications to court the affections of consumers and try to reverse the recent trend of declining net income [2]. One of the ways in which Walmart is looking to re-position itself for the future is by establishing its subsidiary, Sam鈥檚 Club, as an innovation driver to help boost customer acquisition through transformational technology [3]. In mid-2018, Sam鈥檚 Club welcomed about 100 new technology employees to support its technology innovation operations out of a new Dallas HQ [4]. Perhaps Walmart鈥檚 hand was forced in this respect, considering that the giant had just closed over 60 Sam鈥檚 Club stores in early 2018, impacting over 9,000 jobs, signaling the precipitous decline of the existing Sam鈥檚 Club business model [5].
Source: S&P Capital IQ聽
(*Q3 2018 financials quoted for Amazon)
Walmart鈥檚 CEO has in recent months made investors aware of the company鈥檚 transition into more technology intensive infrastructure investments and encouraged investors to revise their short-term earnings projections for the company downwards [6]. Sam鈥檚 Club鈥檚 new smartphone app-powered innovation lab in Dallas, called the Sam鈥檚 Club Now store, is expected to serve as a trial ground for new technologies aimed at improving customer experience; applications will include predictive shopping lists compiled using machine-learning algorithms to better capture customer shopping preferences [7]. Walmart, by investing heavily in technology is looking to keep pace with Amazon, and perhaps take the lead as the future innovation leader in consumer retail globally.
The use of machine-learning within the scope of anticipating demand has been explored by various academics over the past few years; the predictive capabilities of machine-learning are quite vast, given ample amounts of reference data [8]. Through the Sam鈥檚 Club Now model, Walmart will look to harness the predictive power of machine-learning by iterating through customer transaction outcomes and generating vast pools of data which will help to develop key customer behavior insights that Walmart can feed directly into its business strategy going forward to gain a competitive edge in the consumer retail market. It appears that Walmart is willing to endure short-term knocks to its earnings growth in order to secure its future within the consumer retail space [6]; such is the level of competition within the segment that even giants such as Walmart are being forced to fundamentally reconstruct their strategies going forward.
Will Machine-Learning Solve Walmart鈥檚 Amazon Problem?
After Walmart鈥檚 $16 billion acquisition of India鈥檚 FlipKart in mid 2018, it became clear to all that Walmart was in fact serious about its renewed push towards digital [9]. However, Amazon has not lost much steam either after its own $13.7 billion acquisition of Whole Foods a year before Walmart鈥檚 FlipKart acquisition [10]. Amazon鈥檚 acquisition of Whole Foods placed Walmart鈥檚 hallowed food retail business within Amazon鈥檚 cross-hairs, something that certainly sent chills down a spine or two at Walmart鈥檚 HQ. Furthermore, Amazon is no slouch in the machine-learning space; through its wildly successful Amazon Web Service (AWS) platform, and machine-learning breakthroughs such as Alexa, Amazon Go, and a suite of other landmark products, Amazon has gained a level of proficiency in machine-learning that perhaps rivals the biggest global names in Artificial Intelligence [11].
This level of proficiency, combined with Amazon鈥檚 as yet unmatched access to consumer behavior data via its online marketplace [12], means that Amazon is likely to remain a step ahead of Walmart over the near future when it comes to the effective application of machine-learning to gain competitive advantage. What does this mean for Walmart? I believe that although Walmart should seek to modernize its technological infrastructure to keep pace with industry trends, it is important for Walmart to maintain its own core digital identity, as opposed to mimicking Amazon鈥檚 innovations, such as the cashierless Amazon Go concept [13], which appears to have been an inspiration behind Walmart鈥檚 Sam鈥檚 Club Now concept store. Furthermore, in order to achieve this unique digital identity, Walmart needs to revisit its roots and understand deeply what drives its existing and potential customer base in this evolving market environment, and somehow effectively take its cost-saving ethos digital, by leveraging machine learning and sound business strategy.
Question 1: To what extent should Walmart sideline its brick-and-mortar model in favor of online sales growth going forward?
Question 2: Can Walmart compete with Amazon on the basis of cutting-edge technology applications such as machine learning and cashierless stores?
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Very well written article! Having spoken to friends who worked at Walmart, I don鈥檛 think brick-and-mortar business is being sidelined by the company, as much as it is being augmented with online (Amazon did the same in the reverse order). Walmart鈥檚 USP remains large physical stores, and they should continue with it, but add an element of experience to the stores. Walmart Labs (its research division) is working on a lot of technologies and ML algorithms to improve checkout experience, reducing waiting times in lines, etc. In regard to Q2, Amazon is quite invested and ahead in the competition and it is going to be hard for Walmart to continue competing at this pace (unless they acquire tech companies)
This is going to be a tough battle for Walmart! No doubt that strengthening it’s digit presence via Sam’s Club and acquisitions such as Flipkart will help the company stride forward. However in this battle for data-driven retail marketing, Amazon has the advantage of understanding and predicting consumer wide trends well outside it’s immediate customer-base, due to AWS’s far reach! While Walmart should continue down the path of having a strong omni-channel strategy, should it be seeking an alternative USP, such as best in class in-store experience?