Walmart Is Running Itself Like a Startup

Walmart Stores, Inc.'s ( WMT) stock has gone up nearly 25% this year. Even with such a grand surge, the 55-year-old retailer, of which grocery is a big factor, appears poised for further growth because it is remaking itself into, for all intents and purposes, a startup.

Between its billion-dollar acquisitions of millennial-oriented brands like Bonobos and the hiring of a bona fide startup veteran to run its e-commerce platform, the supermarket's tech act is working out. Stocks grew from $66 in January to nearly $86.16 as of Wednesday, Oct. 18. That's compared to a 13% growth rate for the S&P 500 and about 34% for Amazon.com, Inc. ( AMZN) in the same period. But unlike Amazon, Walmart's growth spurt has been virtually uninterrupted this year as it continues to roll out initiatives nearly every week, like home delivery and express returns.

"Walmart is making a serious play at being a tech company," said Amir Konisberg, CEO of e-commerce software company Twiggle and former vice president of a UK-based online grocery store. "It's not a matter of whether Walmart could become Amazon," he added—the two companies are in the same uncharted territory of mixed-channel retail, as Walmart strives to gain digital market share while Amazon sets its physical footprints.

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At more than $1,000 per share in mid-October, Amazon's stock may be untouchable right now. But the competition between the two companies are in the early stages. E-commerce, after all, still only accounts for about 30% of retail sales, according to the latest U.S. Census Bureau data.

"Which companies will create continuity of experience, we won't know for a while," Konisberg told TheStreet. "It might be in Walmart's favor that it's been around for so long and knows its customers well."

But Walmart also faces major hurdles as it begins to scale out pilot programs to reach its international scope, experts said. Only if Walmart executes its innovative platforms according to plan, "then will it position itself as a true innovator in retail and grocery," said Jennifer Joiner, a principal and retail consultant at North Highland.

Tech's effectiveness in the food and grocery sector were reported in the 2017 U.S. Online Grocery Shopper Study, released last month. In it, Walmart ranks right behind Amazon in satisfaction among online shoppers who buy food digitally. On a five-point scale with five being the highest, Amazon came in at 4.6, and Walmart, 4.4, whereas supermarket/food stores scored 4.3.

Momentum Builds

Walmart is "one of the few companies that can run stride for stride with Amazon, and therefore, has the green light from investors to make balanced investments to do so," BMO Capital Markets analysts wrote in a note Oct. 5, ahead of Walmart's annual analyst meeting on Oct. 9, highlighting Walmart's buy-online-pickup-in-stores program and e-commerce growth.

Since purchasing Jet.com for $3 billion and tapping its CEO, Marc Lore, to head Walmart's e-commerce platform, Walmart reported a 60% increase in online sales in July year over year, it announced during its annual investor meeting on Oct. 10. On the same day, Walmart affirmed its fiscal 2018 outlook for adjusted earnings of $4.30 to $4.40 a share and projected a 3% uptick in sales in 2019, including a 40% jump in e-commerce sales.

In some ways, Walmart already holds an edge over Amazon in innovation and experimentation, said Jonathan Opdyke, the chief strategy officer for commerce marketing platform Criteo.

"It was a reset for Walmart.com to bring in new talent," Opdyke said of Lore, the founder of Jet.com, who joined Walmart in September 2016.

In early October, for instance, Walmart bought Parcel, a Brooklyn, New York-based company that specializes in same-day deliveries for online retailers—an acquisition that moved its shares up 1%, as investors anticipate it will contribute to Walmart's development of grocery home deliveries. Just days later, the retailer announced Mobile Express Returns, an app development that would allow customers to return an item on their mobile phones while in a store without having to go to the customer service desk.

Walmart is also dipping its toe into voice shopping through a partnership with Google, which means that anyone who buys a Google Home device can shop the stores' products through the voice-activated speaker—positioned to be a foe of Amazon's Echo.

Earlier this summer, the retailer unveiled a series of home delivery programs, such as its partnership with smart lock company August Homes that would enable delivery people to not only bring customers' groceries to their homes but also to place them in their refrigerators, or its Uber program in which Walmart employees would drop off online orders on their way home from work.

"I love everything Walmart is doing right now," Michael McDevitt, the CEO of meal kit startup Terra's Kitchen, told TheStreet in September. Terra's Kitchen was among the meal kit companies that Walmart courted this summer to be featured on its website come December, he said.

"When retail and e-commerce merged, they found themselves a little behind the eight ball," added McDevitt, "but now they're finding the best partners in the business and really going after innovation."

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Caution Ahead

The pace at which Walmart is introducing products and programs, according to Konisberg, points to a startup sensibility. But while its progress is undeniable, Walmart and its stock are not invincible. For shares to continue rising while also implementing its tech initiatives wider scale, Walmart must convince its shareholders to think like Amazon shareholders.

"Amazon's shareholders are unique because they haven't looked at profitability, they look at long-term potential," Konisberg said. "Because Amazon starting [on] Day One has operated at zero profit."

For now, Walmart is making considerable profit. It brought in $91.5 billion in gross profit between May and July this year, and a net income of $6.2 billion in the same period. That's compared for $14.5 billion in gross profit and $921 million in net income for Amazon between April and June.

So far, Walmart has rolled out only few of its tech developments on a national level. Doing so would not only require patience in watching the balance sheet, but also painstaking care in scaling out.

"Retailers very frequently are able to execute a new program in a small footprint, but bringing it to scale is much harder," said Joiner, pointing to Walmart's store pickup function, which garnered complaints of long wait times in 2015 when it expanded the program.

"As they scale out, they must focus on change management and employee adoption," she added. "When you're selling convenience to a customer you must always come through on the convenience promise."

So what will that look like?

"Customer service," she added. "Successful execution will take training in customer service. Otherwise, the longevity of a product like home delivery will be short-lived."

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