Walmart Leverages Tech, Proximity to Shoppers to Boost Ad Business
Walmart Inc.’s ubiquity in American life is translating well to one of the retailer’s smaller but fast-growing ventures — advertising.
The company said in its latest earnings call last month that its advertising revenue saw “triple-digit” growth in the first quarter of fiscal-year 2022. The business, part of an endeavor that the retailer rebranded this year as “Walmart Connect,” touts not only its vast trove of consumer shopping data, but its technology to process that information. The goal, Walmart says, is to help brands target their advertising in stores and online.
“The business will harness Walmart’s vast omnichannel presence, the power of its closed-loop system and knowledge of its customer base to bring brands measurably closer to their intended audience no matter how they shop,” Walmart said when it revealed the rebranding in January.
During the ongoing COVID-19 pandemic, Walmart has continued to expand its access to consumers by ramping up curbside pickup and delivery services, and unrolling its Walmart+ subscription delivery program. The retailer estimates that each week, roughly 265 million customers visit its stores and online all over the world, according to its 2020 annual report. The company has increasingly sought to leverage this base by rolling out and expanding offerings beyond retail, including in advertising, financial services and health care.
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“That’s a lot of people visiting Walmart’s ecosystem — [and] they’re launching multiple areas related to that ecosystem,” said Jefferies analyst Stephanie Wissink.
“The proximity to the consumer is probably their single largest asset,” she said.
“Now, if you can convert that proximity into trust, where the consumer starts to trust Walmart for more than just shopping, retail…that’s the agenda around health care, financial technology,” she added.
“And if the brands can start to see Walmart as more than just a distribution point, and actually as a partner to grow their business and become more efficient with their marketing costs, that’s an opportunity as well,” she said.
Walmart has been in the advertising business in some form for decades, where its thousands of stores in the U.S. facilitated various exercises in brand advertising. Brands have also paid Walmart for advertising in the form of “trade discounts” or “in-store marketing.”
Having a specific new branded platform around those advertising efforts makes it easier to promote that advertising business in a more focused way, analysts said. Walmart Connect is now also generally viewed as a high-margin business for the retailer, expected to grow at a high rate.
“Walmart has a unique data set because it understands the customer’s basket across different brands and behaviors,” said Cowen analyst Oliver Chen.
“All the things they’re offering are zero surprise to me, because it’s part of Walmart leveraging its capabilities, and then using its assets, which is basically like a platform for different transactions,” he said. “And trying to monetize what they can do in terms of advertising.”
What Walmart has sought to highlight to brands is not just its access to a repository of consumer data based on shopping transaction information, but also the technology to process that data, according to its website.
Such technology can help to draw connections between the on- and offline behaviors of consumers, and to analyze the purchase journeys of millions of consumers as a whole to identify patterns and gauge demand for specific products.
Sophisticated data analytics can also help retailers craft profiles of consumers, and even their households, to try to anticipate their shopping patterns and target advertisements to them based on predictions of what they’ll buy, said Wissink of Jefferies.
“Walmart has the ability to step in and actually build a more immersive experience to use data and use the advertising platform to make the shopping model more efficient,” she said. “So that it’s not generic in getting thousands of results, it’s more curated, based on a likelihood outcome.
“And the brands are highly open to this, because they’re all ultimately looking to spend less, better,” she added. “And that’s the question: can Walmart use the information it’s gathered across channels to make the online and in-store experience more effective?”
The appeal of such a service is especially strong for small businesses whose own marketing resources are limited, experts said. Many of them are already turning to third-party marketing companies for help, said Kelly Martin, professor of marketing at the Colorado State University College of Business.
“[Smaller businesses] are working to get their product into, what for them would be such a huge win, a big retailer like Walmart, right?” she said. “They’re working around the clock to produce the product, to work on design, supply chain specifications and those things. So a lot of times, that end-consumer marketing is something that, in-house, is really hard to do on a limited budget,” she added.
“So for Walmart, it’s smart to offer this service, because they do have that omnichannel angle of, ‘We know what customers are doing in the store, we know what they’re doing online, and we can synthesize and integrate that for you,’” she said.
This kind of ability to synthesize a large volume of consumer information also introduces some newer privacy and security concerns for consumers that retailers will have to address, said experts.
“No doubt any time we interact with any online retailer or in-person retailer, we’re giving up information, right? It’s hard to even think about a transaction today as a consumer that doesn’t involve some of this,” said Martin.
“But it will be interesting to see how they unfold this in terms of public impression in that kind of space,” she said. “On the one hand it could heighten privacy concerns, on the other hand, you might have people saying, well, it’s not nearly as bad as Facebook.”
Walmart said in a statement that the retailer neither provides data about individual customers, nor sells that information.
“Walmart Connect is focused on creating ways for partners to be top of mind in our stores, on our digital properties and across the web in a way that enhances the customer experience,” a Walmart representative said in a statement. “Walmart Connect uses aggregated data and macro trend insights to help brands reach their intended audience more directly and accurately. We work hard to earn the trust of our customers and suppliers while enabling a more relevant shopping experience.”
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