Walmart’s Omni-Channel Dilemma

I’ve been reading everything I can get my hands on about what Walmart is doing in the area of omni-channel fulfillment. I am struck with conflicting emotions – awe at the company’s vision and technological approach, and a great feeling of dread that it won’t be able to achieve its vision because of poor in-store execution.

The vision is audacious. Neil Ashe, President of Global e-Commerce, said the following during Walmart’s most recent quarterly financial call: “We want to know what every product in the world is. We want to know who every person in the world is. And we want to have the ability to connect them together in a transaction.”

To do this Walmart is building a proprietary “global-technology platform.” I don’t believe this vision is fully attainable, but the vision is causing the company to invest big — $430 million this year — in key initial pieces of this platform that could greatly improve its omni-channel capabilities.

Walmart has invested in search. Its new search engine is making the online shopper’s experience better and easier. But Walmart has also invested in search capabilities that allow it to search the Internet, see how competitors are pricing items, and then dynamically reprice its product offerings.

Walmart is also investing in what will undoubtedly be the biggest and most complex distributed order management (DOM) solution in the world. This DOM will give Walmart a view of inventory in its network of retail and e-commerce distribution centers, as well as inventory in the stores. The platform will also need to make very quick decisions about which items Walmart will allow customers to order online and then pick up, with no delivery charge, at its stores. The algorithms and decision rules used to make these decisions could get very complex – mixing product rules (don’t allow perishable or bulky products to be offered for in-store pick up), inventory rules (pick “excess” inventory from a local store, not from an e-commerce warehouse), profitability rules (Walmart has said it is willing to live with lower margins around e-commerce sales, but it clearly still wants to make a profit), and customer rules (if this online sale will get this particular customer into the store for an extra visit, and the customer is likely to buy other things while at the store, do you offer the online product at a loss?).

But this massive investment in technology will not pay off if Walmart cannot execute. I’m not worried about the company’s upstream execution. Walmart has one of the best supply chains in the world. If an online item is going to be delivered to the store for customer pickup, I believe its supply chain team can get the item on the truck and to the store in a timely fashion. But what if Walmart has extra inventory at the store and it wants to pick from the store shelves? I have limited confidence in Walmart’s store operations team to execute.

Bloomberg news reported in March, “Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot.” The article quoted one unhappy shopper saying “If it’s not on the shelf, I can’t buy it. You hate to see a company self-destruct, but there are other places to go.” Bloomberg reporters interviewed store workers and got the notes from an executive meeting and concluded, “It’s not as though the merchandise isn’t there. It’s piling up in aisles and in the back of stores because Wal-Mart doesn’t have enough bodies to restock the shelves.”

In theory, Walmart’s 4,000 forward-deployed warehouses in the U.S. (otherwise known as stores), could make it a formidable omni-channel competitor. But not as things currently stand. Walmart’s dilemma is that it is one of the world’s best technology companies, with one of the world’s best distribution center to store supply chains, but it is not close to being good enough in the area of store operations.

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