Walmart Inc. (WMT) Earnings Call Transcript & Summary

Hello, everyone. I'm Rich Lehrfeld, the SVP and GM of Walmart Connect, which is Walmart's omnichannel retail media business. So I'm going to -- I'm here to really talk about retail media and how we're helping drive Walmart's retail transformation. I'm going to do like a quick presentation. We'll just update you on what retail media is. I know some know it extensively, and some don't know as much. I'll do a quick presentation, and then we'll just do a Q&A. We'll go a little deeper into what retail media is. Hopefully, you've seen our earnings in the past. Last fiscal year, we reported $3.4 billion of global advertising revenue for the Walmart business. We have reported last quarter a 26% growth rate. And then between membership and advertising, the -- operating income is about 1/3 of now -- of last quarter of operating income that are coming from membership and advertising. So a big business. It's growing fast. We think it's important at Walmart. Hopefully, you guys will see what it is and why it's important and what we're doing. So I'll just start -- we'll start with the customer. As you know, customer behaviors are changing. There's rapid shifts in shopping behaviors. It's no longer just a linear, maybe they see an ad, they come into a store or they go online. Every moment becomes now a shopping moment that can be through online they're seeing something or through social or they're seeing something on TV. But ultimately, as retailers, we have to meet them where they are and serve them how they want to be served, wherever they served and wherever inspiration really does happen. So where do we meet the customer? I always -- we always think about at Walmart, the customer first, and we say that always. We say it in our cheer, if you've ever heard the Walmart cheer. And it's really helped guide us for the past 60 years. I love this quote from Sam. He really does always talk -- he always -- he uses quotes a lot. He talks about the customer. And our CEO, Doug McMillon, really puts this to practice in our 4 kind of value propositions, the dimensions of Walmart, which is really about price, assortment, shopping experience and then trust and how we stay competitive is really focusing on that. So price, if you've been around Walmart, you've heard EDLP or EDLC, everyday low prices. We don't -- we try not to do high and low. We stay consistent with making sure we're meeting the best price each and every day. From an assortment perspective, we've been spending a lot of time to really grow the assortment within Walmart, go from thousands to 10,000 to 100,000 maybe towards to tens of millions of SKUs that can go online and then embedding our marketplace business to help us grow our general merchandising business and we've been spending a lot of time. And then from a shopping experience, really upgrading and making our stores a better shopping experience and then building out our online capabilities to have a great customer experience when our customers want to do -- want to shop online, embedding AI into search and using other techniques to really deliver our great customer experience. And all of that is embedded with trust, right? Trust that we're going to meet the price, the assortment, the shopping experience that we're going to be there for them, and we're going to deliver for them. So Walmart Connect, we are a retail media and advertising business. And when done right, we deliver great ads. We deliver relevant ads that our customers want. They can discover new products. And we can help brands solve their business challenges or their marketing challenges and then ultimately, we'll drive profitability into the business. It's a high-margin business. And that profitability can go back to the business to support our customers and support that overall retail transformation. So let me explain what retail media is for those of you that are relatively new. The lines really have blurred in the shopping journey with thousands of touch points and millions of choices for customers. Customers, again, as I said, it's not linear anymore. They're being bombarded with messages. And they feel ultimately, I just want a relevant product when I want it, and how do you make it really simple for me. And for marketers, the B2B customers that I deal with, they're dealing with how do I reach a customer at the right time with the right message? How do I eliminate waste? There's a lot of signal loss that's happening with 3P cookie deprecation, a lot of different opportunities for marketers to reach customers, to get the right data signals, it's very hard. And discovery -- organic discovery on the Internet and organic discovery on sites is still is growing hard. It's still very, very hard. So the notion of retail media is really about a solution that can solve both for the customer and for the marketer. It's 1P, so first party, real shopping, understanding the customer data, combined with traditionally retail media has been at the point of sale on a digital site. So customers are making decisions, a really good audience and then impact at the point of sale. And that is very powerful combination. And it delivers a customer highly effective targeting mechanism that creates an omnichannel advertising that's additive to the shopping experience when done really well. And for a marketer, it really does maximize their limited budgets. And if you even have big budgets, they need to make sure they're efficient as possible. And that creates more value for them and more effectiveness. And then when you look at overall on the TAM, so the overall marketplace, you're talking about a $400-plus billion media business. And retail media is expected to be about $100 billion over the next couple of years. And I would say probably retail data or the notion of commerce data is going to probably be infused in every part of the media business. So we're in a really good place to help capitalize on that and deliver for Walmart and for our customers. And there's so many -- you probably see so many retail media -- so many retail networks. Retailers are diving into retail media because the margins in retail media are being -- retail are being compressed and starting an ads business helps them diversify that revenue and improve that margin. But not all created equal. There's -- there are some larger players like Walmart and then there's probably a lot of others. We believe we have the right to win. So again, Walmart Connect goes deeper into like what we are. We are an omnichannel advertising solution with brands of all sizes connect with customers. Walmart's always been a connector, right? We have great brands with great customers. And Walmart Connect is that accelerant. So if you want to accelerate those sales, we can help you do that. We can help you do that for online, in-store, or we can use our data and go across the Internet to be able to do -- to target, to optimize and then we can see the sales that can come back. And really, again, it's at that point of sale, if you go online, that's going to have a heavy impact. We have unparalleled insights, and we reached that omni-shopper, 145 million shoppers on a weekly basis. So brands and advertisers and suppliers or sellers are coming to us to really engage. So specifically, what are our products? We have core digital products, go to the dot com or the app, it's search, it's display. We have video. We have interactive engagement techniques, brand shops. We can help advertisers really meet that customer in an engaging and creative way. If you go right, we can use that data for off-site through DSP, demand-side platform. So a platform that can reach customers across the Internet. We partner with connected TV advertisers and linear media companies. We have on social, we can use the data to better target, to optimize and measure that campaign. So it's really about that measurement. And then the bottom is the in-store piece, which we're on our journey from an in-store perspective, whether that screens in store, experiences in-store. I have radio, but you can really build an in-store experience that we can help marketers reach their targeted customers, impact them and then ultimately measure those sales. So we're going to make it more tangible. Let's say, you are a new product, Rich's cookies, that's such a beautiful packaging, Rich's cookies there. I guess, Rich, I always say like it's Rich cookies or it's Rich's cookies, I don't know. But let's say you're a new product, no one knows who you are and you come to be able to sell at Walmart. You can get access to a big set of first-party cookie buyers. That can be even choco chip buyers; lapsed, people that buy many different choco chip cookies, so many segments to be able to go after to really reach them. You can use search, and we can push you up to the top to make sure that people know who you are and that they can see your product. You can go in-store with screens. We have 4,700 stores with screens. You can do demos and experiences, allow them to taste those cookies. Or we can use the data, as I said, with partners, let's say, VIZIO TV. You can reach them through new advertising. And all of this, we can ultimately measure. And at the end of their campaign, we can connect them to their advertising tactics and their sales data. I have here ROAS or return on ad spend or you can see their sales. You can see it by channel. I have a kind of lame joke, but it will be -- they'll be more famous than seeing the famous. Thank you, everybody. But reality is, brands come to us to really launch brands, to be able to market in a new way and be very, very effective advertising. So what does this mean? So we believe we're winning. We have a large first-party data set. We are at that point of sale, so it really does affect advertisers and their impact. We're growing at 26%. So a lot of growth, and we have a multibillion-dollar business because we're embedded in a large scale. Walmart is very large, as you know. We have a large data set. We have a large retail business. And we have 4,700 stores. We have 60 years of experience in data to be able to back that up. We have 145 million weekly customers that we're engaging with and a lot of unique differentiators that we can help brands really succeed. So in conclusion, because I have -- we'll move on to the Q&A really quickly. So retail media is one of the fastest-growing businesses in the marketplace. You'll hear a lot about that and you hear about a lot of retailers that are trying to build those businesses. We are at the center of the growth with Walmart. We have differentiated 1P. We are large-scale. We drive the value for the customer. Again, customer centricity is critical to everything we do. We can't be interruptive, add value through learning about new products, making sure they're delivering products that they -- we know they want. From a brand perspective, we're creating a lot of value in helping them grow their business. They are sealing -- seeing Walmart Connect as an accelerant. And then delivering back to Walmart, a profit pool that can be fueled back into our business, back into the customer value propositions and we believe the future is really bright. We're going to drive growth. We're going to do it responsibly. We're going to add value to that customer experience, and we're transforming Walmart's retail experience. So thank you. Now we're going to go and Brad's going to -- we're going to talk about Q&A. Okay. Thanks, everyone.

Great. You want to join me over here, Rich?

Like we coordinated.

Thanks. I'm Brad Thomas, the hardlines broadlines analyst with KeyBanc Capital Markets and thrilled to be here and those cookies looked quite good.

They are good. They're rich. I got a lot of bad jokes.

Rich, you joined Walmart in 2019. What attracted you to Walmart and this opportunity?

Yes. So my background is marketing. I have been an advertising, media, sponsorship and I've done lots of areas in the marketing space. And from a -- I've been a media buyer for over 30 years. And when I was looking to think about where I wanted to go, I was fascinated by retailing and the notion of how retailing is transforming. There are so many models that are being -- were being invented, direct-to-consumer, omni, digital in so many ways, and I just thought it was fascinating and Walmart was one of those companies that I was really fascinated by. They were making lots of investments in digital. They were building out their pickup and delivery business. They were building out so many different models. So really interested in growing. So I was interested in Walmart. I was interested in retail, and I was fascinated to how I can help apply my skills in marketing and media to really help create value for customers. I love the value -- I always talk about that customer centricity of Walmart. I was just excited to be part of that and what we've been doing overall in the digital space and across all of our businesses has been pretty incredible.

You mentioned in your presentation that retail media is disrupting advertising and that Walmart's a leader on that front. I was hoping we could talk a little bit more about how Walmart Connect is different from other media and from other retail media.

Yes. I talked about this like notion of omnichannel and this notion of where Walmart sort of is playing and where we are. I kind of look at 4 differentiators for Walmart. And I know lots of brands kind of talk about this. But as I said, the omni scale is pretty immense. There's not a lot of companies and not a lot of businesses that can deliver at the size, 145 million weekly customers. 80% of America shops. And from a retail media perspective, we can reach customers, as I said, in store, online or offline. So the amount of people that we can reach is pretty large. So the scale is the first one. The second one is like the insights that you can get from that scale. So just really understanding the customer and how we can apply that customer insights into better targeting. We have deterministic data, 1P deterministic data that we can operationalize to find the right kind of customer. We can look at lapsed buyers, we can look at brand loyalists. We can really operationalize that to be more effective in our targeting. The partnership at Walmart is incredible. If you work with Walmart, like, although we have separate groups, we really do try to work together to make sure we can deliver for the customer, our suppliers and the priorities of Walmart, and working across so we can get things done on the digital side or the merchant side or the operations side to work together to make sure we're delivering for that customer. And the last one is really that point of sale. What makes us differentiated is -- there's lots of media companies out there, they're probably straining together lots of third-party data to say what kind of sales were generated. We have the strong first party, but it's that point of sale. Customers are coming on to Walmart.com or they're going into store and they're making those decisions. And if we can influence those decisions, that is really, really powerful. And we have the ability to do that and do it in the right way. Again, customer centricity, adding value, introducing new products, introducing Rich's cookies to them where they never would have known about it and we know they would might want it. So that's the power of Walmart.

Let's talk a bit more about the value of the data that Walmart has and its customer insights. Why is having large-scale first-party data so important to marketers?

Yes. When I talk about data and I talk about as a media buyer, the holy grail to me was to really understand what's the impact of what I was doing. I was buying broad-based TV, and I'm old. So going back in the day, broad-based TV or radio or print, it was -- there's always that saying of, I know 50% of my advertising works, I just don't know what 50%. That's what was happening. We were building reach frequency. We were building models to say, if we had this many impressions against the consumer or this target, this would generate the sales. And we were building models through that. Having a rich first-party data set that is deterministic -- both deterministic on the targeting and really understanding what they're buying, that is really, really powerful. So if you're a big brand, first of all, you need scale, right? As I said, the media marketplace is pretty fragmented. But the more you can aggregate and be able to drive sales, we're a big partner for a lot of big CPG brands and other brands. So they need to come to scale, and they can only work with a handful of big marketers or big media platforms. And then if you're a marketplace seller, like a small seller, you need scale. You need the ability to be able to reach customers at a scale, otherwise, you don't have the efficiency to be able to operate. So they're coming to us. And we've made it really simple for them to come on our platform to start selling and then be able to activate from an advertising perspective. And the last one I would just say, we talk about endemic and nonendemic. Endemic being people that sell at Walmart, and we do really well against those folks, again, targeting, they can operationalize and optimize and then they can go sell. But if you don't sell on Walmart, you're say, nonendemic. You can still use our segments and our data to be able to target across the Internet. And that's why we're building out our capabilities offline, whether that's with our VIZIO acquisition to really target and then use other mechanisms to be able to measure those things. So think about categories that we have never sold -- we are starting to sell to insurance, financial services, QSR, car companies. We have an automotive servicing, but we don't -- well, we actually can start selling other things. But now we can use that data target and when we can ultimately measure through third-party mechanisms, how those campaigns are doing.

Great. How does Walmart Connect serve the core customer? Or how does it affect the shopping experience?

Yes. As I said, we try to be as customer-centric as possible. We think about every experiences. We test our way into all the ad experiences. So we don't just launch experiences, whether that is video on our site or another type of experience. We test everything to make sure that it adds value. Again, discovery of new products, that it's not interruptive. We will never have like a big linking sort of things that come up on or pop-ups on a site. It has to be customer-centric. We have to test our way into everything and build out new capabilities that can meet the customer, that are additive to the customer and then ultimately marketers that we can sell more products and services.

You alluded to VIZIO, an acquisition that recently closed. Can you talk about how the acquisition came about and how it will fit into Walmart Connect?

So we sell a lot of TVs. As a marketer, we also know that TV is still an important medium to have a big broad-based message. And what was happening in a lot of our partners or suppliers, some of the larger suppliers, they were coming to us and saying, "It's great you want our performance. I can see exactly what the sales are. But I'm spending a lot of money in brand marketing, our product marketing over here. And I need full funnel solutions. I can't have this bucket over here and this bucket over here. How can you help me bring it all together? How can you help me with broad reach, new reach and also show me the sales?" So we have been building partnerships for the last couple of years through our DSP, our demand side platform, which really targets customers across the Internet, on social, again, in connected TV, things like Hulu or Peacock. And we started to see the uptake pretty high and more and more interest. So we looked across the industry, and VIZIO was a company that we saw that had very similar to our customer centricity, how we think about customers. They were doing really interesting things at the top level. They have interesting technology that can broadcast in the TVs. That's part of -- the big part of their business, which is an operating system that can reach very targeted ads and targeted content to the right customer and then target -- and then for us, we can then do now more full funnel. So we can attach that retail media to that operating -- to that platform, make it more powerful for everybody. We're keeping the businesses separate for now, but ultimately -- not ultimately, but we can use the retail data to add better targeting, better engagement with a customer and then measure everything. And that's really powerful. And that's a new -- and these are new pieces of our business. We've been doing this, but it will be a really, really big part of our business moving forward.

Great. Can you talk a bit more about Walmart Connect's omnichannel proposition and why that's a differentiator and why that's so important?

Yes. So as I was saying, we have in-store capabilities, we have online capabilities and then off -- it's not offline, but across the Internet capabilities, as I say, across digital capabilities. As I said, kind of what I was saying with VIZIO, there's more and more need to really talk about -- to bring all those pieces together. For us, the power of the store, and we are at the beginning stages for us on how do we activate within store. It's a challenging environment. We have 4,700 stores. It's an operationally difficult business. So what we want to do is make sure we can introduce ads that are additive, like I was talking about sampling or experiences in store that are additive to the customer experience. But that is a competitive differentiator for us. We see, as I said, 145 million customers weekly across all of our channels. It's a large platform, a large canvas for suppliers or marketers to come and activate against. And then we can bring it all together. And I talk about this notion of omnichannel. There's not a lot of companies that can kind of think through the digital, the in-store, the off-platform and kind of bring it all together. And as I said, customers are moving across. They don't just buy one way anymore, especially after the pandemic hit. We saw our customers, they want to go in store maybe on the weekends, but throughout the week, they want -- maybe they want multiple shopping or they want to be delivered to their home. We're seeing them come more, and as they come more, we have to be really good at making sure we're not blasting them here, we're not blasting them here. We're not blasting them here, that we look holistically across how we're actually delivering messages and marketing to them in a responsible, accretive, additive way. And that's what we're doing. There's ways to go. We're not perfect yet, but we are looking holistically at customers and making sure for marketers, they're not -- there's not less waste for them, that they're reaching the customer at the right place at the right time with the right message. And that's the holy grail of marketing.