[Opinion] The Secret Behind Walmart's Digital Transformation

The rise and fall of giant corporations are inseparably linked to the mega trends of technological and market changes. Manufacturing companies that led the global market over the past century, such as Ford and General Electric (GE), were born and grew during the rapid development of machinery, metal, electrical, and chemical technologies in the early 20th century. In the retail distribution industry, the 1960s marked a turning point. Representative companies in each region began during this period, including Carrefour in France in 1960, Walmart in the United States in 1962, and the Aeon Group in Japan in 1969. This was driven by the separation of production and distribution and the advancement of logistics networks using information technology. Since then, the distribution industry, which was centered on department stores, has been reorganized around large discount stores. Walmart secured unparalleled competitiveness by building the industry's first satellite communication network in 1985, linking warehouse inventory, truck transportation, and sales information through system innovation.

Walmart's position, once considered impregnable, began to shake with the advent of online shopping. Online shopping, which emerged in the 1990s, was initially regarded as a peripheral niche business, but the landscape began to change with the introduction of smartphones in 2007. This was the result of marketing using customer information collected through digital channels, rapid delivery utilizing advanced logistics networks, and convenient payment services combined.

Offline businesses lost competitiveness as the strategic value of their core asset, store networks, diminished. Especially with Amazon, founded in 1994, experiencing rapid growth from the mid-2000s, many experts predicted Walmart's downfall. It was difficult to differentiate from online businesses with a focus on mid-to-low-priced products, and the larger the company, the harder it was to transform. However, while other offline retail giants like JC Penney and Sears went bankrupt one after another, Walmart increased both sales and profits last year. Notably, in May, it surpassed eBay to become the second-largest online seller in the United States. This change started with the 'Digital First' strategy advocated by CEO Doug McMillon, who took office in 2014. The core of the strategy was 'rapid investment portfolio restructuring' and 'One Walmart omnichannel.'

He drastically reduced offline investments and focused on the digital sector. In 2015, 50% of Walmart U.S.'s total investment of $8.2 billion was for opening new stores, but this sharply dropped to 1% this year. Conversely, this year, $5.6 billion, or 71% of the total $7.9 billion investment, was allocated to online operations and supply chain advancement. Judging that it was difficult to respond to the rapidly changing environment with internal capabilities alone, Walmart actively acquired digital companies such as Jet.com in 2016, and Shuvai and Moosejaw in 2017. By securing digital experts, core technologies, and millennial customers in a short period, the company internally shared a clear direction for digital transformation.

The basic concept of 'One Walmart omnichannel' was to pursue strengths that 'Amazon does not have but Walmart does.' Recognizing the limits of following Amazon, Walmart approached the market by linking its offline stores with online services. With 90% of the U.S. population living within 10 miles (about 16 km) of a Walmart store, the stores were rebuilt as digital bases. Services such as in-store pickup after online ordering and two-hour delivery of daily necessities proved effective. McMillon advocated the principle that Walmart should innovate its business model from an integrated perspective that does not distinguish between online and offline, just as customers shop regardless of method or channel.

In Korea, the retail industry is also undergoing drastic changes. As the crisis among offline market leaders intensifies, the speed of response is accelerating. At this juncture, Walmart’s case, which combined online trends with the unique strengths of offline, offers valuable insights. This is not limited to the retail sector alone. Walmart, which sought differentiated competitive advantages from an integrated perspective of online-offline convergence in the digital transformation of all offline companies, remains a lesson in progress.

Kim Kyung-jun, Vice Chairman, Deloitte Consulting