Walmart Inc. ($WMT)

So good morning, everyone. I want to thank you for joining our Sixth Annual Evercore Retail and Consumer Conference. Doing it the first time in our global headquarters here in New York. And it's my great pleasure to have with me Seth Dallaire, who is the Chief Growth Officer of Walmart just stepped into that role.

So I guess, Seth, you are the Chief Growth Officer, what does that mean? What do you actually do?

That's a great question. I get it frequently. Thank you for inviting me. What it means is that I look after a set of businesses that complement what we do in the more traditional retail world, and I'll explain what those are. So first, it starts with our third-party marketplace seller business. So that business is one where we work with sellers to bring more assortment to our e-com business and stores so that customers and members can find it and be introduced to general merchandise categories, fashion and beauty products, things that may be who knew Walmart had. Like that's an important part of our business in terms of building assortment for customers and helping our customers shop omni with us and introducing them to our digital and e-commerce businesses. So that's one part of the business, and that extends over the Walmart enterprise. So each segment will work internationally with the marketplace sellers. And then the retail media businesses, Walmart Connect, Sam's Map, other advertising that sits within different countries where we have e-commerce offerings. That also now comes into the growth organization the data ventures businesses, which create the data product called [ Cintella ] that perhaps some of you are familiar with. Our suppliers subscribe to that information. That also is coming through the growth business, but now extending into Canada and Mexico and other international businesses. The membership businesses, Walmart Plus expanding those offers through not just the U.S., but we made an announcement that we'll be rebranding the Canadian membership offers to Walmart last week. We'll be looking to do more of that type of work in the future. And then lastly, the VIZIO business, which is the television manufacturing business that we completed the acquisition of last year, 1.5 years ago. And that business sits adjacent to the advertising businesses that we run them. So the I'm often asked like, why would Walmart buy a television company. And the reality is that we sell a lot of TVs at Walmart. And the television business is no longer the the domain of the sort of buy it for wholesale, sell it for retail and keep the margin. The real television business is now post sale, and it's driven by technology and the operating systems that sit behind the glass on these devices. So that is an area of advertising connected TV advertising that complements what we do with advertising products in our e-com businesses and stores. And we're excited about that.

I'd love to double click on that. So advertising was about a $6 billion business for you guys, just to frame it. What's -- take us through the evolution of getting into advertising, and how VIZIO is now complementing that and accelerating it?

Sure. I've been at Walmart for just over 4.5 years. And I would say that when I joined the investments in the advertising space were -- we were making them, but there were certain technological features and capabilities that relative to other platforms that I had built were not the same, we're underdeveloped. And so when I came, I worked with the team to really define the opportunity and why advertising is so important and complementary to a retail business. That was the first sort of task. And then in doing so, once getting an agreement that, hey, this is an area we want to invest in, it's actually advertisements are good for our customers. They're good for our seller community. They help avail customers and members to new products or things that they didn't know were available for sale at Walmart, and they have a different margin profile than the traditional retail business, kind of everyone wins in that respect. We focused on building a platform that could grow that business and scale as the investments we are making in e-commerce were taking hold. So we're very tightly coupled with the e-com business. That business has been growing healthily. We've been making investments there. As that business grows and more customers and members come in and shop, they want to find more assortment through the marketplace. . [Audio gap] benefits within the membership program, your renewal rates or the likelihood that you will renew increases as well. And so as we have cohorts of customers who only shop with us in store, we'll encourage them to try shopping with us in an omnichannel way, bring them into the e-commerce business as they come into the e-commerce business, we'll encourage them to become members. As they become members, we then encourage them, and we see that their visit frequency, purchase frequency and the average order value of those baskets increases in a way that looks very different than the buy-in store-only customer. So that membership piece is often. It has many benefits to our P&L. But we also get to serve these customers and members in a different way, too. And the assortment that we bring is really a critical component of that, and that's where the marketplace is so strategically important.

I want to get to the marketplace, but I want to double click on the membership for a second. So is membership is the connected tissue. It seems to me to put these things together. Is it a standalone P&L driver in its own right, when you factor in all the cost of delivery and to serve that member, or is it really just about connecting all these things together?

Well, we try to look at all of these components of the growth business as is complementary to other parts of Walmart. If we think ran them as purely independent types of businesses than it minimizes the sort of impact or complementary nature that we have across other parts of our business. That we need a strong e-com business in order to have a really compelling membership offer. We need to have a really strong e-com business to complement and meet our customers desire to shop however they want to shop in store or on their phones. And the businesses in the growth team, membership, marketplace, advertising, they all benefit from that -- those investments, both the experiences we bring to our customers and members in the stores and clubs as well as in the app. So I wouldn't say that any one that we look at independently of one another. They all complement and depend on one another.

So now to get it to the marketplace, so double-click on that a little bit. So we have Walmart Data Ventures, there's 3P. I guess, sort of frame where that is now in terms of the growth drivers that you're looking at. And then what's the real proof point to see if that works with companies that are looking to be on 3P? Or if you get vendors like -- how do you actually win in 3P, I guess.

Well, it's early innings for our Marketplace business for sure. And we're excited about the signal that we're getting for that business. And the -- we hear and see it in a couple of different ways. So one, we hear from marketplace sellers who, I would argue, are some of the most sophisticated digital marketers and e-commerce participants in the industry. We hear from them frequently that they want ease of setup with us. They want access to scale and Walmart customers across any channel in which we're serving them. And so we've made big investments in terms of technology to enable a seller to set up, bring their product to our product catalog, do it in a way that we can build that once and scale it globally. That's really been John Furner's mantras to build one -- scale platform once and then scale it globally. We're taking that same approach with the Marketplace business. The output or measure where we would determine whether that's successful or not, is are we seeing the actual assortment come into our product catalog, we are. Do we hear -- when we do outreach with sellers across the globe? Are we hearing that they're finding our customers and selling more stuff? We hear that as well. So there's a lot of enthusiasm from that community because they see that we are serving a group of customers and members that our competition has not or we're able to do it in a way that is different than how they've done it or perhaps we're bringing something unique like physical point of sale to the equation. So across each one of those different dimensions, those sellers have told us, yes, keep going, give us more capability, we want more access to your customers so we can sell more stuff. We know they're in there and that they want to buy our products.

How important is fulfillment by Walmart to sort of complement that growth in the 3P marketplace?

It's -- I mean, it's critically important. The -- we see a causal relationship between delivery speed and conversion. So that's why you see so much emphasis in our marketing materials and across the execution of our business around delivery speed. We have a unique position where our stores sit close to over 90% of U.S. households, we can get products to people quickly and -- like really fast. And you'll hear my peers like Walmart U.S. CEO, Dave Codina and John Furner talk about delivery speed being a critical part of our offer for customers and members. We know that as you bring items closer to the customer and you shrink the amount of time it takes to deliver those items that the conversion rates on those items and the purchase frequency increase. So when we talk with the seller about bringing their product catalog into our store, it's not just about getting the catalog and making it available and shipping it to you in two weeks, that wouldn't be good enough. That item might sit. When we bring that item into one of our fulfillment centers, and we're delivering it to you same day or next day, we see the conversion rates go up. Our customers love that. So from a supply chain standpoint and just sort of how we're bringing fulfillment to the table, speed is what our customers want, and that fast fuels the frequency.

Interesting. So that's actually a great transition, I think, to the next thing I want to talk about, which is Walmart is talking a lot about global platforms. And under John's leadership, and you taking this role, I guess what I would say is how can you create value for Walmart by taking this global view of these platforms? And really, how do they work together? What sort of findings and learnings do you get and integrate through the business?

Yes, that's a great question. We are -- so I'll talk about data Ventures as a starting point. We built that business a couple of years ago from scratch, and building it from scratch afford you some flexibility in terms of -- you don't have a lot of technical debt behind the product. So we were successful bringing that forward. And we heard from our suppliers who subscribing to that product that there was nothing like it in the other countries that they were working with us in. And when we're addressing a global enterprise on the supplier side, news travels about data quality. If there's something, there's a piece of data here that they're getting from the U.S. business, how do we get that from Mexico? How do we get it for Canada. And so when that request starts to come through to our teams for building a new product, we have a lot of freedom to go in there and set it up the same way. So same principle of building this product once and then scaling globally. We've done that now in Canada and Mexico with that data ventures with the [ Cintella ] product. And we see a lot of runway for us to do that in other countries that we serve. Similarly, with advertising, we -- now that all of the advertising businesses are rolling up through a single organization in the growth org, all of the capability that we've worked so hard to build for Walmart Connect, we can now start to bring similar capability to the Sam's business for advertising. And the reason why that's important is that we may be working with the Procter & Gambles of the world, for instance, in our U.S. stores for Walmart and the types of outputs or data signal and capability that we bring to them for advertising in the U.S. for Walmart may look different historically than what Sam's is offering because they built it on a platform. And so now we're looking at things and saying, okay, how do we provide the same attribution windows? How do we provide the same definitions of sales outcomes to Procter & Gamble, so that they can look across the Walmart Connect business and the Sam's Map business and say, okay, I'm no longer having to rationalize or compare two different apples and oranges in terms of these data definitions. So again, the same principle of building once scaling globally applies there in a way that will ultimately help our suppliers who are investing in these ad products, too.

I mean, those are some great examples of -- I guess you mentioned Canada bringing Walmart Plus there. What learnings have you found from around the world that you want to either import back to the U.S. or move into different markets?

Yes. It's not one-way traffic. We're looking out into the international markets and trying to understand, okay, are there things that are happening there that our U.S. businesses might benefit from? Are there things that are happening in Sam's that would benefit the Walmart U.S. business where we to start using that. So that -- I'm going pretty deep on that now with my peer, Chris Nicholas, who is the Walmart International CEO. So one observation, our customers -- some of our customers who live in Mexico want to shop the U.S. catalog or some of our customers who live in the U.S. want to shop the Mexico assortment. They want products that are local. So how do we enable that cross-border shopping. And that -- so we're building that capability now, where we're going to enable those customers that sit in those different markets to buy a cross-border. That's a big learning for us where I think even 6 months ago, we may have sat here and said, Canada just wants Canada and Mexico just wants Mexico. When in reality, there are many communities here in the states that want to shop those Mexico products and vice versa, and we're going to enable that.

Fascinating. I'll bring up a whole other tariff discussion probably. So I won't even go there because I want to make sure we have time in this, I can't believe we've gotten through probably 15 minutes and haven't brought up AI yet. So let's talk about it a little bit. We've had -- we've heard people say that's going to discermediate retail. It could take away the retail media business and advertising, I guess, at, whether it's for Amazon or even yourselves. So I guess as your teams leverage AI to grow and scale your businesses, how important is it for you to scale fast versus go well as you implement AI.

Well, you want to do both. But I think scaling well, given my prioritization would be the first thing we would do before scaling fast. If you scale fast, but poorly, there's a whole bunch of tech debt you may assume or things you may have to unwind that in the interest of speed might not be helpful. Now you may want to run experiments that would allow you to move quickly and then give you signal quickly that you could decide thumbs up, comes down. But that to me is the part about doing it well. You need that to have some point of comparison or have a thesis about why you would want to move so quickly to begin with. If you're just moving for the sake of moving, then that might not be the best use of your energy or resources. From -- how that's applying to our approach with working with AI. We are leaning into engagements with most of the big names in terms of the hyperscalers. And the reason why that we're leaning in is because we need to be where our customers are. This is an important point for us in the sort of commercial behavior to understand how customers are going to use these different tools. So there's a lot to learn. And it's our belief that we're going to learn more and learn better by being in like involved as opposed to sitting on the sidelines and waiting. And that's been our approach, and we are learning a lot. And much of that application of the learning we can use in the environment of those agents. We've been public about how we've been partnering with some of those companies. Then also we get a lot of learning that we can apply to the building of our own agentic tools like Spark. And some of those -- like the way that -- and observations that we have about our customers who are using those agentic tools within our own walls, is very interesting. And we've talked publicly about some of those things recently. On the earnings call, we shared some different usage benchmarks. But the -- I would say one of the most interesting things to me is the types of prompts that we get from customers in those agentic environments are quite different than what maybe historically we've seen. And that the language, there's a natural language, a query string of questions that may take on almost a research type of tone to them. An example that I gave earlier this morning, we may see a prompt around. I'm looking for a detergent for my child who has sensitive skin. Can you recommend something that's fragrance free? Now we can talk that here. That's not historically how people have searched for fragrance-free detergent. If that type of query string is now happening in a commercial environment, we need to be aware of that. If that's how our customers are coming to us to shop, and they're looking for a retrieval or an answer to that prompt that has value for them, and that's correct, then we need to orient ourselves around that. That's very different than fragrance-free detergent.

It's fascinating, I guess. So as you're in that involved in that conversation very early with the consumer. What does this mean to the retail media network part of the flywheel. I mean if you're -- if the agents are filtering product choices, does that end up cannibalizing the opportunity in retail media?

We are in our own agentic tools. We've introduced some advertising placements there. It's something that we'll continue to experiment with. I would say that I have at my core belief that advertising is very similar to merchandising in the e-comm space. And that advertisements contextually in a retail environment provide a lot of value for customers. because they introduce you to new products to introduce you to new brands, they introduce you to new price points. And without that type of introduction, in an environment where you're just looking at your phone, you're not standing in front of a line and ladder or shelf of items that are designed to attract your attention. I just -- I think that's a shopping experience is just not as interesting. So if you're -- we'll be careful to watch in customers, and how they're using these tools. But I would expect that advertising and retail media will have a role to play because it helps customers shop. It's not an interruptive experience, it's contextually relevant.

Where do you see AI -- agentic AI creating the most leverage for the business? And where do you see human oversight as most needed to sort of make sure we don't go off the rails on this?

Yes. Well, in my business, there's a couple of places where the sort of human component or oversight is really important. We describe our business as being people-led tech powered and that holds true with how we're approaching some of these agentic capabilities, an example for you in marketplace. We could automate a ton of behaviors, and we have and capabilities to allow sellers to give us more information about their products and ingest them into our product catalog. But we need to have some human moderation over that ingestion so that we understand these are the types of things that we actually want in our product catalog. These are the types of products or pieces of information that maybe you didn't include that are important for us in terms of providing and making a great shopping experience for customers and members. So that's a side by side. They're better together than if we just allowed an agent to operate on that independently without any moderation, it may take us some place that's suboptimal for the retail experience.

I have to step back even your long experience in the business, which of your either competitors or partners do you think are doing the most interesting things with AI right now?

Besides Walmart?

Besides Walmart, so I'm forcing this on you, sorry.

I mean, there's so much going on, and they are very distinct different strategies for engagement across -- even across the retail space. So that, to me, is fascinating, like why is one company behaving this way and another company is behaving another way. I certainly have my own theories about it. But the -- I would say that one thing I do think critically about is the approach that we bring or I would bring to Walmart and the team and how we're interacting and culture here is important. Walmart is a people-led business. What people are a feeder of our business, not a bug. And when we show up in stores, our customers show up in stores, we are often this far away from them. We might be asking you about your day. You may be asking me for help to find an item. Those are experiences that I imagine I'm highly confident they will continue in the future and the need for that type of human interaction and the experience that you have in the store as a customer, remember, will be heavily influenced by that interaction. And that's a different approach and -- I'll speak for myself in my experience where before joining Walmart, I had worked exclusively at technology companies. Some of which people, I would argue, are a bug, not a feature. And if you move towards that orientation so heavily, I think you have very different outcomes and experiences that you provide for a customer. The great privilege of mine is being able to be on the ground in soup centers, in clubs regards country to see just how our associates interact with the communities that they serve. It's been a huge eye opener for someone who has worked at companies where the interaction with the customer is behind glass and you don't maybe ever see that person. And I take a great amount of pride in the experience our associates put in front of our customers every day, but I believe that the technology that's being developed right now, agentic or otherwise, can only make that experience better. It won't eliminate it.

All right. So with AI building baskets and actually becomes more properly agentic in shopping, I guess, where does Walmart need to sit? Do you need to be the customer-facing agent or more, if you will, agnostic, the infrastructure behind everyone else's agents or basically all of the above?

Yes.

Okay. That was easy.

Yes. I mean, we -- there's a couple of different ways that we engage with customers. So we talk about why we would work with third parties. And we need we need to be where our customers are. So there will be one way of engaging with a third party that may require us to work with them on product catalog ingestion. It may require us to work with them on payment mechanisms or baskets. That might be a very different approach that we would take to how we would use agentic tools in our supply chain or things -- the rails of the business that sits behind the supercenter or behind the club or behind the e-comm business. We have to be ready to work on all of those dimensions. If we ignore one of them for the sake of the other, then I just think -- I think we'll get out of balance.

Right. Well, look, growth can be expensive. We know that, and we're probably a lot of shareholders in the room here, and it's a retail consumer conference. So ultimately, people look for growth and returns. So I guess as Chief Growth Officer, how do you look at your role in driving that 4%-plus top line translate into hopefully 8% operating income growth over time?

Well, the businesses that the growth organization manages have obviously very different profit profile than the traditional retail business. The advertising business, data subscriptions, the technology of televisions, membership, marketplace they all offer a different profile than the more traditional P&L that you would see in the supercenter or a club. And all of them add to the customer experience. So I have a high degree of confidence that any investments or dials that we turn to make those businesses bigger and better are in service of the customer and member experience. They make them better. The fun thing about it is that we can grow really quickly as we make those investments because we still have a lot of room to run with our e-com business, for instance. You had mentioned like at what point do you have too many ads or not enough ads. We look at those measures across competitors and across our own experimentation. And I have a lot of belief that we can do more. And so it's fun to watch the progress there and the amount of growth that each one of these teams has been delivering, but it's very tightly coupled with other parts of the business. We then have the optionality. My teams exist to bring the optionality of investment of those funds across the rest of the business. So advertising operating income, membership income. All those things are then we have the optionality to apply them across other parts of the business. It could be investing in more supercenters, could be in remodels, could be in price investment. There's a whole bunch of ways that we can use the outputs and the success of the growth businesses to make the experience better for our customers. And that's in line with EDLP, EDLC principles that the business has been built on. So I'm very excited about the work that I get to do. I love the remit that I have now to sit across horizontally across these segments and international geographies to bring all the successful things that we've had in the U.S. to bear there. And then reciprocally learn from all the things that have been happening in these markets that could help improve our business here in the U.S.

So to keep it simple, $100 billion digital business at Walmart U.S. with a double-digit variable margin it's probably given 40 bps of tailwind to profitability. How do you see the opportunity to do that sort of thing now is around the business that as Chief Growth Officer.

Well, I think one of the reasons why I was -- the role for the growth organization was elevated across the segments is because there's a recognition that we could make more investments in other parts of the business. So this -- the opportunities and things that we're building in the U.S. it could be a new advertising feature. It could be the TV business. How do you apply those things, or what opportunity do you see across these other companies -- the companies that are in our portfolio in the different countries in which they operate? And that, to me, is exciting. And I would say that we're, again, it's early innings for us in that respect. So I look at those things with a sense of urgency to say, like, let's go. There's so much here that we can do, let's just start doing it. And that's what gets me up in the morning.

But from a return standpoint, it doesn't sound like with the hyperscalers like Amazon doing $200 billion of CapEx, like you don't need that. In fact, you almost wouldn't want it. I don't want to put words in your mouth, but like do you worry that like they're spending so many more multiples than you guys are on CapEx, which I think is around $30 billion.

Well, I would tell you that my orientation is around how we serve customers. I'm not following a competitor in terms of how we might orient our business that way. I mean -- that's my answer to that. I don't -- I mean what's the right answer is like how do we serve the customer the best way. What number is that? I don't know. I'm just focused on making sure that we make the customer member experience better. That's what my teams are designed to do.

That's where I'd like to go, I guess, last part of Walmart's mission is always delivering value for money. So people can save money and live better.

That's right.

You mentioned democratizing fashion. We saw that in the recent quarterly results, some acceleration there. And now the VIZIO that you mentioned before are having some pretty shocking price points that are quite low. Maybe how do you -- what's the vision of how -- what you're doing, cheap growth offers can really drive the Walmart mission forward?

The marketplace is important here because the -- when you look at our e-commerce business, I would -- and I can say this, I have an informed opinion about this. We do a great job with groceries right that stock-up trip, that fill-in trip mean these are complex orders to serve, 20 items in a basket, high order value, perishable items that we're bringing out of the store to our customers' homes, that's very difficult to do. We do it really well. And you see our business as being -- the numbers that are on the scoreboard reflect that as well as our membership business numbers as well. But there's a whole part of business in general merchandise. And you mentioned fashion to commercial or consumer electronics like TVs, there's home decor. There are areas of investment that our merchants have made on the 1P side to elevate those brand experiences, both in Sam's Club and at Walmart that are starting to show up. And then additionally, the marketplace allows us to bring assortment that we haven't had in the store or maybe the Walmart customer who's been shopping with us, didn't know that we had, who knew that you had these items. The marketplace assortment allows us to expand and bring brands and products to them that maybe they hadn't shopped with us before. When they try it, maybe they buy a home decor item that they shop. That's a new category for them with our business. That's important for us. And it does drive then, okay, a bigger relationship with the customer and the margin structure of that general merchandise business is quite different than the -- a grocery stock-up trip. So there are many benefits for us on the consumer side of availing them to a whole host of different products in categories that maybe they haven't shopped with us before, like general merchandise, home decor fashion, but then the margin structure that's different because it's marketplace, it then we come into all of the solar services that we provide and the impact on the P&L there. So that's a big crank of the flywheel that, again, serves our customers and members well, but then also supports the investment thesis we put forward.

Well, Seth, I can keep going on forever, but that's a great way to end it. Really appreciate you coming and look forward to the next few...

Yes, thanks for the time today. Appreciate it.