Leading the Future of Retail
Marc Lore, Jr.
President and CEO, Walmart eCommerce U.S.
— By Peter Hildick Smith, WG’81
The U.S. retail market has changed more in the past five years than at any time in recent history. Brick-and-mortar retailing continues to be aggressively disintermediated by Amazon and other major online sellers, changing consumer behavior, and resulting in over 12,500 U.S. physical store closings in 2017 and 2018. Major chains like Toys “R” Us, Radio Shack and Payless Shoes have liquidated, while others like JCPenney, Gap, Sears, Kmart and Macy’s have dramatically consolidated their store bases, driving up shopping mall vacancies, cutting foot traffic and leading many to forecast a collapse of traditional physical retailing.
One former Wharton MBA student doesn’t agree. Through his visionary leadership as President and CEO, Walmart eCommerce U.S. and founder of Jet.com, Marc Lore is proving that the future of retail is not binary — online or brick-and-mortar — but “omnichannel.”
Marc is aggressively growing Walmart’s overall retail sales by giving shoppers the channels that deliver the best experience — from the big weekly family grocery purchase to sourcing individual hard-to-find books or the latest digital gear. The result is that Walmart eCommerce U.S. ended its most recent fiscal year (January 31, 2019) with annual revenue up 40% vs. the prior year, making Walmart the nation’s fastest-growing major online retailer (Amazon online store net sales grew 14% in 2018), moving past Apple to No. 3 in overall sales. More impressive, Walmart’s U.S. physical retail same-store sales also grew, nearly 4%!
Part of Marc’s success in today’s intensely disruptive retail environment may come from the fact that he is not a career retailer but got his background as an expert in quantitative risk management and as a successful internet entrepreneur, unconstrained by the “rules” of traditional retailing.
A New York City native from Staten Island, Marc’s first career was in banking — at Bankers Trust, Credit Suisse First Boston, and ultimately, as Chief Risk Officer of Sanwa Bank, and author of The Professional’s Handbook to Financial Risk Management. Then the first dot.com growth wave of the late 1990s caught his attention, and he left banking, with no funding or business plan, to start his second career as a digital entrepreneur. Lore and two grade-school friends built the first sports card trading exchange, ThePit.com, which they soon sold to Topps, the chewing gum and collectible card company.
Marc entered retailing with his second startup, Diapers.com. He developed the business during his Executive MBA studies at Wharton West, with help from Marketing Professor and Program Vice-Chair Len Lodish, and Wharton West classmate Scott Hilton (WG’07) who became the first employee.
The company pioneered selling a full range of baby products with fast delivery at deeply discounted prices direct to young moms, out-competing retail giants Walmart, Costco, Sam’s Club, and even Amazon. He then expanded its narrowcasting model to other specialty retail markets, including Wag.com (pet products), YoYo.com (toys) and Soap.com (personal care and household products), under the Quidsi (Latin for “what if?”) umbrella. Diapers.com caught Amazon’s full attention, which then directly attacked with the launch of Amazon Mom, undercutting Diapers.com pricing with 30% off discounting in the process also scaring off venture capital interest in investing further in Diapers.com. Amazon acquired Quidsi two months later in November 2010 for $545 million.
After joining Amazon for two years, Marc left to found his second online retail venture Jet.com, targeting Amazon with a differentiated savings offering, made possible through Jet.com’s enhanced logistics. Just over a year after its founding, Jet.com was acquired by Walmart for $3.3 billion.
Marc has been with Walmart ever since, helping lead the transformation of the world’s largest retailer into a true omnichannel competitor that’s outperforming the market!
For most brick-and-mortar retailers, simply surviving today’s market disruption is considered a “success,” as online sellers captured nearly 10% of total U.S. retail sales in 2018. As a result, the quest for answers on how to combat online retail’s relentless assault has become an industry obsession. Across the Hudson River from Manhattan, at Walmart.com and Jet.com’s office in Hoboken, New Jersey, Marc Lore offers some of those answers, with a clear vision for retail’s future and how to get there. Here are some highlights from our conversation.
How have you been able to accelerate Walmart’s online growth rate in just two years to nearly triple that of Amazon’s, while also ensuring strong physical store sales growth?
Our big focus is on Walmart’s unique assets and leveraging them in a much bigger way rather than just playing catchup. We redesigned the website, increased the assortment tremendously, improved delivery speed to lead in grocery, and now provide same-day delivery from 35% of all Walmart stores nationwide. The greater our long-tail assortment, the more money we make, and the more prices in the head of our product assortment can continue to come down.
We set out early on to change the external narrative so we can hire great people, by showing we are transforming, growing fast and innovating. As a result, we’ve brought in great talent, and I’m starting to see its impact on the fundamentals, an area that you just have to get right.
Can you sustain that terrific growth pace?
From same-day delivery to 35% of the country today, we’ll be at over half of the country by the end of this year. Our people are not waiting!
Again, look at Walmart’s assets; we actually have a lower cost to serve on delivering both fresh and frozen food the same day to your home because we’ve got 4,700 points of distribution for fresh and frozen food that are already turning inventory because of existing foot traffic. These stores are basically warehouses that are already profitable before the first pick, so we’re in a great position to ultimately deliver fresh and frozen to 90% of the country at a very low cost to serve. If that’s truly our advantage and if customers buy fresh every week, we should double, triple, quadruple down on that advantage and then work from the inside out as opposed to just chasing the market.
One of the great challenges legacy brick-and-mortar retailers seem to face is overcoming their deep-seated physical retail culture, where they often see their own online division as the enemy stealing store division customers and sales. How have you cracked those cultural barriers at a retailer the size of Walmart to deliver such strong online and same-store sale growth?
It’s an important partnership, and you have to work at it! Early on, Greg Foran, who runs the stores, and I, knew it was important to work together and that, ultimately, there is one customer and one U.S. business, despite the fact that they’re run by separate people in separate groups in separate locations. It’s challenging because there was tension between the groups in different levels in the company, so Greg and I have to connect at the top and make it clear that we’re going to win as one team, and talk about it as one team. We did some organizational moves that showed people that we’re serious about being one team. Greg and I brought in a Chief Customer Officer across the entire U.S. segment who reports to both of us. That person is the glue who keeps our customer focus unified across the business — not a stores person or an eCommerce person but a Walmart U.S. person. We did the same thing with technology, there’s now one Chief Technology Officer for the whole business. The Merchandising and Logistics teams also work really closely together. Things like that are critical to where we need to go as a business, because strategically, it’s the combination of leveraging the store assets to deliver the head of the assortment, while our fulfillment centers deliver the long-tail items that bring the whole Walmart experience together so it’s seamless to the customer.
Aligning management incentives also helps a lot. All Walmart store managers are incentivized to push eCommerce sales by getting credit for eCommerce sales in their area. We’re all on the same bonus plan so both sides are rooting for the other side to be successful!
From ThePit.com to Quidsi to Jet.com — you and your teams have created tremendous market success with great consistency and speed. How did you build such high-performance organizations and winning teams?
It’s interesting — there’s no one right company culture. A good culture is one that’s consistent! You’ve got to know who you are, have a clear set of values you believe in, stand behind them, live by them and then hire people that are a good fit. If you do that, people will be generally happy. It’s when you don’t know exactly who you are, don’t have a set of values and a clear point of view, and are not willing to take a stance that you get a hodgepodge of people, a lot of conflict and different factions. We have to say — “This is who we are. If you don’t fit, you’re not going to do well here.” Knowing a person is not going to do well in a culture is 90% of it.
At Jet.com, we had three values: trust, transparency and fairness. For me, it’s all about empowering people. First, the company has to trust people; we did things to trust people that other companies would never do, and were transparent in ways that other companies were not. Everybody knew what everybody else was earning. No secrets — it’s all posted on the wall. On the fairness side, everyone made the same amount at the same level — men, women, people of color, across every function. They felt it was fair, open and transparent, and that’s what people want, which was huge on the trust side. We didn’t have non-compete agreements — you can work here, and we trusted you to do the right thing, even if you left. There are pros and cons to all of this, but it’s all about taking a position.
We were also very transparent with information. Everybody in the company had access to all company metrics, goals and how we are doing against them on a daily basis in real-time, which was also a risk. We felt we were going to live these values like no one else and be more trusting, more transparent and fairer than any other company out there. If we do that, people feel empowered to really make things happen. They know the vision and the strategy, and then we get the best work that they’ve got!
We also want people who are passionate, smart, optimistic, tenacious, kind and empathetic, but kindness is the one common theme. If you have to choose between smart and kind, many companies choose smart. I’d pick nice over smart; it’s a clear choice.
What’s your advice to other retailers looking not only to survive but also thrive over the next 5 to 10 years and beyond?
E-commerce allows a retailer to go after an entire customer’s wallet share in a way that was never possible before, no longer restricted to the amount of physical space a retail store has. With unlimited shelf space, you can sell customers everything they need. The key is to understand that, because a lot fewer people are selling items in the long tail of the assortment, there’s less competition there, so product margins are higher in the long tail, which allows prices at the head of the assortment to keep coming down — that’s the flywheel! That’s put a lot of pressure on brick-and-mortar retailers that just sell at the head of the assortment, like Toys “R” Us and other specialty retailers that will continue to face great pressure.
For all retailers, I would say: Look at your unique assets and then leverage them in a much bigger way rather than just playing catchup. Figure out what your real core competency is — what you can do better than anyone else — double and triple down on that, and rethink how you’re operating. That’s what we’re doing at Walmart.
Lastly, what are the next retail innovations we’ll be seeing in the near future?
With advancements in computing power, artificial intelligence, and deep learning, it’s time to take conversational commerce very seriously, as we move toward a more conversational way of shopping just by voice or text over the next decade. It’s no longer going to be — “I want to search for a toaster and get 50,000 results.” The future is — “I know everything about you and your brand and other preferences, so you can just say by voice or text, ‘I need a toaster.’” You’ll basically have your own personal digital assistant that knows you and says, “Here’s what I recommend,” and boom, “I’ve got a few toasters in your $100 to $200 range that you’ll like. Here are the benefits. Which one do you want?” The consumer no longer has to do all that extra work. Retailers that are good at merchandising could really, really flourish in this type of commerce. The problem with Amazon Alexa and Google Home is that they’re approaching it from a tech-first mentality; they’re not hearing the conversations and getting smarter. We have a program called Jetblack. It’s a conversational commerce company with humans in the loop. Ask us anything you would want to ask, and we’ll answer. It may come from a computer or from a human, but you’re going to get the right answer. We’re seeing hundreds of thousands of conversations in native form and so are getting smarter in conversing in ways that Alexa and Google can’t. Instead of trying to retrain customers to talk tech, you’re letting them speak in their own way.