The Supply Side: New profit centers fuel Walmart’s new flywheel business

Walmart President and CEO Doug McMillon recently revealed a new “flywheel” model to the investment community, saying it’s the old productivity loop with the customer at the center but with new engagement platforms and profit centers added to fuel growth for years to come.

McMillon said the customer is still in the center of the new flywheel model, but the retailer can do more now than offer low prices to drive larger purchases per customer. As Walmart jumped headfirst into omnichannel retailing, he said the consumers have more choices than ever in how they shop. He said Walmart would continue to invest in better shopping experiences, from low prices to speedy checkout to the freshest of produce picked by customers or on their behalf by personal shoppers.

McMillon said the new flywheel business model would also serve customers more broadly and deepen relationships through three main pillars: growing e-commerce marketplace, financial services, and health and wellness. He pointed to financial services as one way Walmart can help make daily life better for customers.

“Last month, we announced the formation of a new fintech startup designed to develop and offer innovative and affordable financial solutions. Our customers have been clear that they want more from us in terms of financial services, and this new approach will help us deliver for them in a differentiated way more quickly. For a fintech startup, customer acquisition costs are high, and our platform lowers those costs. We have a head start,” McMillon said.

McMillon said Walmart would be able to monetize more of its capabilities to drive more profits that can be reinvested back into the customer experience at the bottom of the flywheel. He spoke of opportunities to grow online marketplace revenue and robust advertising business that has already grown exponentially with more growth expected. He said Walmart could also monetize its massive data in the advertising space with suppliers and new partners.

McMillon said “scaling new profit pools” will be a recurring theme as retail reinvention gets underway.

Walmart recently renamed its advertising business Walmart Connect. McMillon said this is intended to create “ways for partners to be top of mind in Walmart stores, on its digital properties and across the internet in a way that is additive to customers’ experiences.” McMillon predicts it’s going to be so big that he expects Walmart Connect to be well within the top 10 U.S. advertising platforms in five years.

“Walmart is one of the biggest buyers of media in the country,” he said. “We understand the relationship between advertising spend and business returns, so we know what marketers want.”

He said Walmart has not been aggressive with advertising on its website or app because it sought to preserve the customer experience. He said Walmart could connect the dots for consumers and suppliers, which is the goal with its growing media business.

Brett Biggs, Walmart’s chief financial officer, also recently spoke of the flywheel business model, saying the advertising business is already a decent size business with the opportunity to grow multiples of what it is today and help Walmart partner more closely with suppliers. Biggs made the comments during a virtual investor conference on March 2 with Raymond James & Associates. He said Walmart has the traffic in stores and eyeballs online and can acquire customers inexpensively because of the traffic advantage.

Suppliers took note when Walmart began to talk about monetizing its data. McMillon said data is valuable, and Walmart has a history of giving it away to suppliers so the retailer could get the products it needs to sell.

“That’s important, and some portions of our data will continue to be free because we need [suppliers’] help serving our mutual customers,” he said.

McMillon said there are other aspects of Walmart data that are valuable and can be put to work in new ways.

“The concept of building products, digital products that we can use internally and also monetize outside, is a really exciting prospect,” McMillon said. “Some of those things will be purely digital. Some will be a combination of people-plus-digital.”

The exciting part of the new flywheel model for McMillon and Biggs is the added ways it gives Walmart to grow revenue.

“I have been in this role a little over five years, and the way we think about the P&L is different than it was a few years ago,” Biggs said. “I feel like we have many more options of how to generate the financial results as a company than we did five years ago. It feels good now, and it will feel even better five years from now.”

Biggs said Walmart will still focus on lowering operating costs that have always been a big part of the productivity loop and remain a large part of the new flywheel model. He said being a cost-conscious operator and the added revenue from the new pillars of growth will allow Walmart to continue to evolve the customer experience.

“It’s been fun to evolve this flywheel because it has so many applications really in everything we do inside the company. It fits so well,” Biggs said.

EDITOR’S NOTE: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.