How the old guard are fighting back - Walmart

Our thinking

How the old guard are fighting back – Walmart

Jason Noguiera, Global Consumer Strategy Manager

Disruption is increasingly a harsh reality for many once‑dominant incumbent, or legacy, companies. Netflix and other streaming content services have upended cable TV. Amazon and other online vendors have challenged brick‑and‑mortar retailers. Tesla has pushed automakers to innovate with its electric vehicles and the promise of self‑driving ones. But these days, some of the legacy companies have recognized how this is playing out and are fighting back aggressively. In a series of three articles, we look at established “old guard” firms that have shifted their strategy to fight back.

Walmart makes gains with "Click and Collect"

Every day brings new evidence of the “retail apocalypse,” the devastation of brick‑and-mortar stores wrought by Amazon’s rocketing growth. But long‑dominant Walmart, itself once a disrupter, is fighting back by rapidly developing its online channels.

Walmart’s transition began with the purchase of Jet, an online retailer, and Flipkart, an Indian online vendor — plus heavy investments in its digital capabilities. In the beginning, the market didn’t give Walmart the benefit of the doubt, but now it’s demonstrated that it can win, at least in certain segments, such as groceries.

For now, the key to Walmart’s grocery gains has been no‑cost “click and collect.” Customers order groceries online and pick them up at a designated time, with the orders brought to their cars — somewhat like a drive‑through lane at a fast‑food outlet. Recently, it launched an unlimited grocery home delivery service for USD 98 a year.

21st Century grocery shopping:

Ultimately, “click and collect” is a hybrid solution. The endgame will likely be free home delivery of groceries within hours of ordering. The question is who will get there first.

In this, Walmart faces many competitors, not least Amazon; Target; Costco; and Kroger, the largest supermarket chain in the US, now partnering with British logistics firm Ocado, to master delivery.

Hiring someone to go around a Walmart and pick up grocery items is not cost-effective in the long run versus having dedicated, fully automated warehouses to fill orders.

What we're watching next

Among the key questions facing incumbent firms shifting their strategies in the face of disruption from technological innovators is how much their losses in these transitions may total before potential gains from their new business models kick in. For example, Walmart is going to have to invest more to compete with Amazon and others to widely offer low‑ or no‑cost, same‑day delivery of groceries.

The specific securities identified and described are for informational purposes only and do not represent recommendations.

Category: Our thinking

Tags: Disruption & innovation

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