Retailers Should Be Worried About Walmart This Holiday Season

Walmart sure seems excited for the holidays. Last week, it announced that its 4,700 stores would host 20,000 holiday parties this season, allowing customers to take pictures with Santa, see product demonstrations, and get gift ideas. The parties will not only be experiential, but also functional, as customers can try out curbside pickup, mobile payment, and get first look at a host of new brands showcased just for the holiday season. Other retailers should sit up and take note.

The whole idea is to get you to think and feel differently about Walmart—no longer just a place to shop in the traditional sense, but a place to be excited about visiting—for exposure to experiences, new products, and retail innovations. This means you’ll spend more time in the store and, Walmart (WMT) hopes, buy more.

Legacy retail, by definition, pre-dates the Internet, and by design is not configured for it. The old model of “oversized spaces full of stuff coupled with mediocre selling experiences” won’t cut it, and is a sure route to the retail graveyard. Retailers that win in the future will adapt the playbook of the digitally native retailers that use their physical spaces to create emotional connections with customers and deliver memorable experiences. E-commerce CEO Marc Lore knows this because he bought Bonobos—a digitally native men’s apparel brand founded in 2007—and he knows that customers who have great experiences in Bonobos stores feel more connected to the brand.

This is successful retail economics—smaller footprint stores uncluttered by inventory, where customers connect with brands and are fulfilled via e-commerce. It’s an open secret that the exemplars of this movement are the digitally native vertical brands, from Away (luggage) to Warby Parker (eyewear). New retail separates the two core retail functions: fulfillment (getting stuff to you) and information (communicating price, brand, experience). Look at Tesla (TSLA), for instance. The old way of selling cars—a massive space full of inventory coupled with a pretty lousy experience—makes no sense in 2017. Tesla’s showrooms are small-scale, brick-and-mortar locations designed to engage customers and bond them to the product and brand. Savvy retailers use physical locations to connect with customers, and then are agnostic to where the product is actually purchased (online or offline).

We’ve moved on from a world where “brands” as labels, logos, and identifiers have any resonance to a world where “bonding” is paramount. Gillette, for instance, built a successful brand for the old economy, but in a few short years lost 10% market share to Dollar Shave Club, which built a meaningful bond with customers. Walmart’s core assets are its stores and 1.2 million associates. Having customers experience Walmart in a new and fresh way is critical to “bond-building.” It’s no coincidence that Walmart, in a conceptually related initiative, has employees deliver orders to customers. Stores can become the community place to surprise and delight, and to create exceptional and memorable experiences.

This focus on experience is a savvy business and bottom-line enhancing move. Our own research shows that this initiative will increase customer order values, increase shopping velocity, and decrease returns. Using data from Bonobos proves out the point. Customers who visit Bonobos Guide Shops—experience-oriented locations where customers can touch, feel, and bond, but cannot take product home—“turbocharge” Bonobos customers. We found even one visit forever changes a customer’s trajectory, causing them to buy more and return less, whether buying online or offline in the future.

Walmart is banking on the fact that the party experience will cause you to feel more connected, and therefore lead you to buy more in the future, whether from stores or from Walmart.com.

Physical stores and supply chain efficiencies has been the bedrock of Walmart’s incredible trajectory. The future success depends upon bonding and engagement, so expect to see more events, more parties, and more initiatives like the recent move where Walmart employees are delivering your Walmart.com orders.

David Bell is professor of marketing at the Wharton School, author of Location Is (Still) Everything, and president of Idea Farm Ventures. Barbara Kahn is professor of marketing at the Wharton School and author of Global Brand Power: Leveraging Branding for Long Term Growth.

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