Walmart proved again yesterday that digital natives do not own the future of retail. While the logistics industry had its eyes on Amazon reintroducing their third-party delivery service. Walmart struck first. Extending their last-mile delivery network to local merchants may seem like a tangent, but it’s true to Walmart’s core “Everyday Low Prices” mantra. The new service, called Walmart GoLocal, drives more volume into their contractor and gig networks. The COVID19 pandemic put eCommerce on steroids over the last year, and now, more than ever, the customer experience of brick-and-mortar retail extends to the front door. In that light, Walmart had to find ways to extend their “Everyday Low Prices” promise to delivery, and yesterday’s move was a decisive step in that direction.
I learned a fundamental truth about the package delivery industry early in my UPS career; density drives cost. A marginal increase in density (pieces per pickup/delivery and distance between deliveries) exponentially impacts cost. Beyond delivery cost, Walmart GoLocal addresses the Achilles heel of the gig economy. Independent contractors and gig workers are not endless resources. As the economy improves, this fact will become apparent. These non-employee drivers provide an easy way for delivery services to flex capacity, but the flexibility works both ways. If they don’t feel appropriately compensated for their time and effort, they will take their services to the highest bidder. Adding local merchant volume to the system provides more opportunities for Walmart to maximize the driver income on each delivery route.
Lead, follow or get out of the way
Walmart is leaning into the reality of eCommerce acceleration. I snicker inside when I read articles about same-day and next-day delivery being a passing fad. “Ship-from-store is more expensive than shipping from a distribution center” is a common refrain. What I hear even more is, “Why would anyone need same-day delivery?” Here’s a clue, talk to the daughter whose hairdryer just went on the fritz. Fast delivery has been a differentiator; now it’s becoming a rite of entry into the eCommerce wars. Amazon has invested over $40 billion to make Amazon Prime a one-day delivery service. Beyond Walmart, Target, Best Buy, PetSmart, Dick’s Sporting Goods, and hundreds of other retailers have jumped on the ship-from-store train. To make this train run, however, you need drivers. As demand for this limited resource increases, becoming an employer-of-choice will be critical. Walmart’s new delivery offering recognizes this fact.
The 59-year-old Startup
Was I surprised by Walmart’s move into third-party delivery? Not really. I’ve spent the last few years uncovering the secrets to incumbent company survival in the digital age for my upcoming book, Organizational Velocity. Before I dug into my research, I must admit that I did not think of Walmart as a cutting-edge company. I do now.
Fifty-nine-year-old Walmart behaved like a startup during the pandemic. Walmart introduced its subscription program Walmart+ in September 2020, offering free next-day and two-day shipping from Walmart.com. About 11% of Americans signed up for the service in just 14 days. Citing data from a survey of 20,179 respondents, research firm Piplsay found that 35% of respondents had a favorable impression of the platform. Another 38% said they believe Walmart+ will be competitive with Amazon Prime. This year, Walmart+ dropped its $35 minimum purchases constraint to expand its portfolio of products available for same-day delivery. Beyond the Walmart+ expansion, consider all the simultaneous pilot projects and partnerships that Walmart initiated just in the area of logistics in 2020:
• Autonomous delivery with Cruise, Nuro, Udelv;
• Middle mile autonomous delivery with Gatik;
• Last-mile delivery with Instacart, Point Pickup, DoorDash, and others;
• Dark Stores (i.e., highly automated fulfillment locations that could theoretically operate in the dark); and,
• Market fulfillment centers (MFCs) (compact, modular warehouse built within, or added to, a store).
This last pilot with the MFCs is exciting, especially if you’ve ever been run over by a personal shopper in a retail store. I’m also intrigued by Target building Urban Consolidation Centers to aggregate ship-from store volume from area Target stores. It tells me that ship-from-store and same-day/next day are not passing fads; they are evolving.
Creating Options for an Uncertain Future
Walmart, of course, has no crystal ball. It’s no different from any other incumbent (ergo, successful) company, except in one significant way. Walmart is creating options that allow for quick pivots based on changes in the external environment. Creating optionality is a crucial capability for companies to thrive in a disruptive world.
Not convinced that Walmart is a digital savant? This story of how they used the over-hyped technology blockchain to drive bottom-line improvements for Walmart Canada may change your mind. As one of the largest truckload shippers in the country, Walmart Canada partners with approximately 60 for-hire carriers to move millions of pounds of freight annually. Each invoice (or freight load) generated 200 data elements. This profusion of data created an abundance of invoicing issues. In fact, disputes affected 70% of invoices, resulting in long delays in processing payments to the carriers. In addition, Walmart Canada personnel spent a considerable amount of non-valued added time determining how to assign charges to a specific load. Partnering with DLT Labs, Walmart Canada deployed a customized Blockchain solution (DL Freight) for its freight invoice and payments system. The solution provided a single ledger with consistent data. As a result, invoice disputes dropped from over 70% to below 2%, a 97% decrease.
Filling the Missing Link in the Disruptor Trifecta
More than any of these innovations at Walmart, a move in 2019 showed me that they are more than “innovation theater.” In May 2019, Walmart lured Google VP Suresh Kumar to the newly created position of Chief Technology Officer and Chief Development Officer role, reporting directly to CEO Doug McMillon. The move likely challenged the existing salary bands at Walmart. Still, it addressed a missing component of many incumbents in what I call the “Disruptor Trifecta” – leaders in today’s digital economy must be 1. Smart, 2. Knowledgeable, and 3. Technology fluent.
Great leaders have always been smart (e.g., possess good judgment) and knowledgeable (know their business). Too often, though, “tech fluency” is missing and designated to a “tech team.” However, leaders are blinded to digitally-enabled alternatives without tech fluency, leading to a death march of sub-optimal decisions. More bluntly, many executives who should be leading their firms through digital transformation do not have the tech fluency to see what’s possible. The concept of tech fluency is not about senior executives knowing how to code machine learning algorithms. However, emerging technology must be understood at more than a superficial level.
Hiring Kumar and putting him on the senior leadership team streamlines his ability to act while bolstering the tech understanding of leadership. It also allows him to raise the tech understanding of the entire senior team. This is critical as digital technologies remove long-standing barriers, making what once was impossible possible. Moreover, a 2021 research study analyzing over 1,300 large enterprises with “digitally savvy” executive teams found they “outperformed comparable companies without such teams by more than 48% based on revenue growth and valuation.”
The Hard Work of “Easy” Growth
It’s often this hard work behind the scenes that is unnoticed. It’s the 90% of the iceberg that’s underwater. While I know thousands of Walmart leaders beyond Suresh Kumar have influenced Walmart’s digital trajectory, it stands out to me as an indicator of a digital leader willing to experiment, learn from failure, and continuously raise the bar. It shows me that they have a humble senior leadership team who doesn’t pretend to know everything but opens their minds (and wallets) to new voices. In Organizational Velocity, Walmart is what I call a “Forever Company” intent on sacrificing some short-term glory for long-term sustainability.
No, I wasn’t surprised by yesterday’s announcement of Walmart GoLocal. Knowing Walmart as I do now, I would be more surprised by complacency than leading-edge service announcements. Moving at the speed of change is a choice requiring companies to break free from status quo mindsets and do the hard work of updating their leadership requirements, compensation, and organizational structure. If you want to be a “Forever Company,” you would be wise to follow Walmart’s lead.
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