In the Age of COVID-19, Walmart Ups Its Digital Game
Future historians will have the ultimate say, but it seems to me that 2020 is a year for the history books. For the purposes of this article, I am speaking specifically of the COVID-19 pandemic, the economic effects of attempts to contain and mitigate that pandemic, and how businesses have responded.
The Coronavirus Recession
To start off, many Americans have been negatively impacted by the coronavirus recession. The National Bureau of Economic Research (NBER) officially declared in June that the U.S. is in a recession. A common definition of a recession is two consecutive quarters of declining GDP. However, the NBER explained that the unprecedented depth of the decline in employment and production across much of the economy warranted the recession label, even if the recovery takes less time than usual.
This decline has had real impacts on real people. As reported in The Wall Street Journal, almost 11% of households reported not having enough to eat in the previous seven days in July. That figure is up from 4% in 2018. Likewise, the Census Bureau’s July data showed that the number of renters who had little or no confidence that they can make next month’s rent payment increased to approximately a third.
Because cities have the most concentrated populations, they are most at risk of coronavirus outbreaks and the health complications and deaths that inevitably follow. Thus, cities implemented some of the strictest lockdown measures.
The Chicago Tribune reports that in my own city of Chicago, hundreds of thousands of jobs were lost, consumer spending dropped 43%, and more than 60% of Chicago-area business closures were permanent (as of August 31st, according to business review platform Yelp). Of those permanent closures, approximately 25% are restaurants and bars. Retail stores made up 18% of area business closures since March.
Chicago’s unemployment rate has been 2 to 5 percentage points above the U.S. unemployment rate since the unemployment spike in April. In Q1 this year, Chicago and the U.S. had essentially the same unemployment rate. And in Q4 2019, Chicago actually had a slightly lower unemployment rate. But coronavirus restrictions have affected many jobs in Chicago that require contact with customers (e.g., retail, dining, and live entertainment), thus contributing to Chicago’s higher than average unemployment.
According to data from Brivo, a company that makes access control solutions, the number of times people used their credentials to enter an office were down 51% in late August compared to the end of February. Visits to manufacturing and warehouse locations were down by a third overall. (There is significant variation in their data, depending on the city and the industry.) This huge decrease is a combination of both job losses and more workers working remotely.
There has been some positive economic news recently though. For example, August marked four consecutive months of retail growth. However, even that positive has the caveat that retail sales grew a seasonally adjusted 0.6%, which is down from 0.9% in July, which was already down substantially from May (18.3%) and June (8.4%).
Based on all the above, it seems pretty obvious that many Americans are suffering to some degree. I should note that there is a divergence of outcomes from the coronavirus recession. Some highly skilled workers who can work remotely have saved money by not eating out or traveling. Many have used some of that money on home improvement, including furnishing their new home offices or gyms. The desire to escape city life led to the largest monthly gain ever in home sales in July, and low interest rates have led to a surge in mortgage refinance applications. Some people have completely paid off their credit card debts.
Our current economy could accurately be called a story of the coronavirus haves and the coronavirus have-nots. The economic fortunes of Americans have varied depending on socioeconomic status, demographics (with women and minorities more adversely impacted), geographic location, industry, type of work, and other factors. The story of divergence is similar for American businesses.
As many others have observed, long-term trends in the move towards digitization have accelerated remarkably in the coronavirus environment. Businesses who have invested in their digital infrastructure in recent years were better positioned to cope with a loss of in-person customers and onsite employees this year.
Naturally, companies with teleconferencing technology have prospered, including Zoom and Microsoft. Other companies that have had an easier time adapting to the challenges of COVID-19 include those with technology for touchless transactions, robotics, online commerce, or business processes and capabilities to sustain a decentralized workforce.
For example, last year Domino’s Pizza started experimenting with a process for busy customers to pick up pizza without ever entering the store. They were able to modify this process once the pandemic began, quickly introducing contactless “Carside” pickup. Combined with steady investment in multiple digital ordering options over the last decade, these innovations allowed Domino’s to thrive while many other restaurants faltered.
In healthcare, Kaiser Permanente began investing in call centers, telemedicine, and electronic medical records in the 1990s. These are all investments that were useful before, but they are nearly essential during a pandemic. Some of Kaiser’s competitors were not so forward-looking, and their businesses have struggled.
Stanley Black & Decker began investing heavily in autonomous robot systems in the months before the pandemic hit. The original intent was to cut costs and boost productivity. But their investment in so-called cobots (because these robots operate with shop-floor workers) kept them from having to stop production and reorganize factory spaces to keep workers separate. Plus, robots can perform their duties without any fear of them spreading disease to their coworkers.
Finally, companies that have invested heavily in online commerce have been well-positioned to adapt to the pandemic conditions. The battle for consumers’ online retail dollars just keeps heating up. Case in point: Walmart.
What’s Walmart Been Doing?
Doug McMillon has invested heavily in e-commerce in his six years as Walmart’s CEO. Building new U.S. stores has practically stopped, and he has spent approximately $20 billion on e-commerce startups. These efforts have born fruit: Walmart says that its e-commerce revenue has jumped 97% from a year ago.
Additionally, to become a more digital company, Walmart recently attempted to team up with Microsoft for a bid to purchase popular video-sharing app TikTok. Such an acquisition would give Walmart an extremely popular digital channel (and put it directly in competition with Facebook). There are also reports that Walmart initially entertained the idea of partnering with Google parent Alphabet and SoftBank Group. The deal with Microsoft fell through, but the latest plan (as of September 17th) would see Walmart and Oracle teaming up for a significant stake in TikTok. However, this deal has not yet been finalized, and the plan could change yet again.
In some ways, this deal making is just a continued recognition from Walmart that online commerce and digitization is important for its future. After all, Walmart paid $3.3 billion in 2016 to acquire Jet.com, an American e-commerce company, and they paid $16 billion in 2018 for a controlling stake in Flipkart, an Indian e-commerce company. Walmart has also sought to create a digital ad network that would compete with Amazon and Google for marketing dollars. An ownership stake in TikTok would give them a platform to sell ads to suppliers, and perhaps even a few of its products. Walmart knows that more of retail is moving online, and they do not want to get left behind. Needless to say, the rise of Amazon has not gone unnoticed at Walmart HQ.
In fact, Walmart just launched its new Walmart+ membership service, which is designed to compete directly with Amazon’s Prime service. For $119 per year, Amazon Prime includes fast, free delivery of millions of items and additional perks like streaming music and video entertainment. Prime members also get AmazonFresh grocery delivery and expanded online grocery pickup from Whole Foods stores. Amazon Prime is enormously successful, with more than 150 million members.
Walmart+ will allow members to get free grocery delivery, a discount on gas at Walmart, and mobile phone check-out in stores. Members will also get free delivery on some of the 100,000+ items sold in the typical Walmart store, but free delivery from Walmart.com is not included. (However, most web orders above $35 currently qualify for free shipping.)
Walmart’s efforts are a reminder that when it comes to business models and business strategy, you cannot just set it and forget it. And successful strategy formulation begins with the end in mind. And it looks to me like Walmart clearly plans on continuing to lean hard into being a bigger player in this increasingly digital world of ours.
Will these trends continue? Well, as the old saying goes, prediction is notoriously difficult, especially about the future. But it does seem likely that the winners of digitization and online commerce will continue to pull ahead while the losers could go the way of the dodo. Walmart is wise to acknowledge that reality and respond accordingly.
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