Walmart’s recent announcement that it would be closing 63 of its Sam’s Club stores raised eyebrows and alarm from consumers across the country. Many are still wondering what drove this seemingly drastic decision — though the plan to repurpose 10 Sam’s Club locations as e-commerce distribution centers gives us a clue.
Despite concerns picked up by headlines, this transition only validates predictions of where the retail industry is headed and provides a glimpse into what retailers must do to remain competitive as e-commerce continues to grow.
{mosads}Not only is this transformation a positive move for Walmart, but we can also expect to see more shifts like this redefining the role of retailers as the future of e-commerce unfolds.
In the race to dominate the e-commerce world, Walmart is a sleeping giant. The multinational retail corporation is No. 3 behind Apple (No. 2) and Amazon (No. 1) in e-commerce sales.
And while Walmart has made strides to compete with Amazon — growing its e-commerce at the same rate (18 percent) last year — Walmart’s online business was still less than one-fourth of Amazon’s as of two years ago.
The decision to close several of its Sam’s Club locations represents a significant effort by Walmart to close in on Amazon’s monopoly of the e-commerce industry.
In addition to remaining competitive, the Sam’s Club closings are also in line with major trends in the market. The way consumers are spending is changing, particularly in the U.S., meaning shopping less at big box stores such as Sam’s Club or Costco.
Purchasing goods has evolved from buying in bulk once a month to making smaller, more frequent purchases, especially as online grocery shopping becomes more popular. This shift has influenced the role of big box stores — they now function less as locations to purchase products and more as places for consumers to browse and test products before purchasing online.
By converting Sam’s Club locations into e-commerce distribution centers, Walmart is able to keep pace with this shift — incrementally moving away from the declining big-box model and reinvesting in e-commerce fulfillment to gain an edge over Amazon with its omnichannel strategy.
Along with changes in consumer behavior, the market is also shifting, with increased focus on omnichannel retail uniting the in-store and online consumer experience. In an effort to embrace this trend, Amazon has begun building locations that allow it to bring inventory closer to consumers, which is an expensive and lengthy process.
Walmart, however, already has a real estate footprint of 11,703 stores under various names worldwide, giving it a distinct advantage over Amazon, especially with this most recent move, which will allow it to leverage existing real estate to strengthen its last-mile delivery offerings.
Still, Amazon is already making strides to catch up. To remain competitive, Walmart will need to leverage customer data from e-commerce sales and deliver the Amazon-like experience consumers expect.
As the changing market stands to redefine future business, major concerns do arise — namely, the effect the shift will have on jobs. The primary drawback of Walmart closing 63 Sam’s Club stores is the loss of jobs, but this is representative of the direction the market is going.
Over the past decade, lower-skill, lower-paid jobs have been slowly disappearing — replaced with an increase in service-related, knowledge management-based positions. Businesses need to focus on retraining an existing workforce, as well as training those entering the workforce, for these new positions.
While automation may not be the key driver behind this shift, technology has certainly contributed as it reduces the need for manual labor. The gig economy has also influenced change, giving rise to more flexible working conditions and increasing job changes.
In the race to offer consumers a cohesive in-store and online experience, Walmart and Amazon each currently has what the other needs — it’s a matter of who can secure the whole picture first.
As Walmart advances its e-commerce offerings and Amazon solidifies its physical footprint, how that whole picture ultimately looks will be determined by each giant’s ability to leverage an omnichannel strategy that unifies in-store, online, pickup and delivery for consumer experiences.
The retailer that strikes the right balance will redefine the future of the retail industry, as well as consumer expectations of tomorrow.
Nick Foy is chief strategy officer for ModusLink, a U.S. company that provides supply chain management services to global technology and software companies across its worldwide operations.