The Supply Side: Walmart.com counting on store sales in new retail reality
Retail realities are shifting, and many categories from apparel to pets are moving online. But that does not negate the importance of brick-and-mortar that continues to pay the bills for Walmart.com, according to retail analyst Leon Nicholas, a vice president of retail solutions at WestRock.
Speaking to a room of suppliers in Bentonville, Nicholas outlined his retail shift theory. He said Walmart’s productivity loop, which is Sam Walton dogma, will need to shift a bit for suppliers in the future, with more focus on shoppers and not just low prices.
He said retailers like Walmart are doing well with online but still depend on sales at brick-and-mortar stores to keep the e-commerce business afloat. In the past, new stores were the place Walmart and its suppliers looked for sales growth, but the retail giant added only a handful of stores last year and again this year. Sales growth is going to have to come from existing stores selling more items, according to Nicholas.
He said Walmart’s focus on scale and growth have not changed, but stores are no longer the growth engine. They are merely the scale. Nicholas said online sales will continue to outpace brick-and-mortar sales growth into the foreseeable future.
“The stores are cash cows. The online business is not cash positive,” Nicholas said. “Net sales growth is going to come from e-commerce going forward, with 55% of Walmart’s growth this year coming from online, not stores. The store comps will drive the remaining part of the growth.”
He said the productivity loop, ground zero for the Walmart-supplier relationship, allows the retailer to use discipline to operate for less. He said Walmart will continue to squeeze its biggest assets —stores — to accomplish that part of the loop. It will continue to squeeze suppliers for the lowest possible costs to achieve everyday low prices that result in sales growth.
In theory, the productivity loop works. But when consumers have the option to buy from retailers like Amazon that play hard on prices, it’s harder to achieve optimum results. Nicholas suggests suppliers consider shifting to a shopper productivity loop aimed at driving consumers to put more items into their baskets, make more trips and ultimately shop fewer retailers.
He said shopper productivity needs four things to create conversion: optimal merchandising, digital activation, store pickup, and services that can also draw shoppers to brick-and-mortar. He said Walmart is doing all of those things.
Nicholas said suppliers have to do a better job merchandising their products in stores. The days of stacking product high and watching it fly are gone. He suggests retail-ready packaging that can drive efficiency as well as looking for billboard space in the store to promote products by leveraging technology to provide for engaging interactions with shoppers at brick-and-mortar.
Some suppliers are already testing interactive displays. Beauty departments are testing a makeup mirror that captures the shopper’s image and shows them what the makeup would look like when applied to their face. Dr. Scholl’s foot pain center display allows the shopper to step on an electronic pad that measures the foot arch and shape to recommend the best fitting shoe orthotics.
Walmart is also testing digital shelf labels in two stores in Rogers on the bread and cereal aisles. The shelf labels allow for automatic price changes and have the capability to provide shoppers with more information on the products. That latter option has not yet been used in the two Walmart tests.
Zyrtec is testing a display for allergy season in select retail stores. This display allows shoppers to enter their ZIP code to see the allergy report for that area. Nicholas said this display is drawing positive consumer feedback in the stores where tested. He said the arc for product merchandising is bending toward digital, and suppliers need to look for ways to elevate their products via interactive displays that resonate with shoppers. He said displays have to work harder and sell more items this year than they did last year. The displays also have to solve more than just price.
“If you are not helping shoppers be more productive, you are not doing enough,” Nicholas said.
He also recommends suppliers look for cross-merchandising opportunities with other categories to create solution displays. He said busy consumers are looking for answers to dinner time solutions. Consumers may not have 30 minutes to prepare a meal but may have 10 minutes. Warm pizzas by the door with a bottle of soda could be the answer to a busy parent’s dinner dilemma, he said. Kantar reports 63% of consumers surveyed said they are stressed about shopping because of the time it takes.
“Shoppers have to save time and money. Quality also indexes just as high as price among premium shoppers and busy families,” Nicholas said.
He said grocery pickup solves a time problem for consumers, but that’s another challenge for Walmart as 15% of grocery pickup users are not coming into the store to get additional items. He said suppliers can work with Walmart to fix that by offering more cross-category deals to the online shopper that requires they come into the store for pickup.
Walmart’s online grocery app is separate from the Walmart.com app, and while the retail giant continues to add more general merchandise to the grocery app, it remains a small fraction of the items typically sold in a supercenter.
One last area Nicholas said suppliers can work on with Walmart is merchandising in conjunction with services. He said Walmart continues to expand services in healthcare, financial and entertainment, and car care. He said snack companies could set up a display in the auto care center. Workout gear and drink bottles could be merchandised with the protein powder near the pharmacy area. In the spring, allergy medicine could also be cross-merchandised in the lawn and garden area.
Nicholas said Walmart is smart to pursue more service offerings in conjunction with retail sales as $2 of every $3 spent by consumers go toward services. The other $1 is spent on goods.
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