Walmart set to ramp up automation

Walmart opened its two-day 2023 Investment Community event in Tampa, Fla., by unveiling plans to pursue automation in an even bigger way.

Bentonville, Ark.-based Walmart said last year it initiated efforts to automate all of its regional distribution centers. But late Tuesday at the investor meeting, the retail giant announced that it expects about 65% of stores to be serviced by automation by the end of fiscal 2026, with roughly 55% of fulfillment center volume moving through automated facilities. The transition stands to improve unit cost averages by approximately 20%, the company estimated.

Walmart’s omnichannel supply-chain network encompasses a mix of distribution centers, e-commerce fulfillment centers, market fulfillment centers, consolidation centers and other facilities, as well as its stores and Sam’s Club warehouse clubs.

The retailer’s distribution centers receive, house and distribute products to stores, while the fulfillment centers process online orders and hold millions of items to be picked, packed and shipped directly to customers, as soon as the next day. The MFCs, located inside or attached to stores, use robotics and artificial intelligence to fill online orders more quickly, enabling Walmart stores to handle increased digital order volume. Meanwhile, the consolidation centers bring more efficiency to the network by combining supplier shipments and then transporting them to the regional distribution centers.

“We are in a unique position to serve our customers and members however they want to shop, which will fuel continued growth,” Walmart President and CEO Doug McMillon said in a statement. “As we grow, we will improve our operating margin through productivity advancements and our category and business mix, and drive returns through operating margin expansion and capital prioritization.”

Under the supply chain “re-engineering,” Walmart said it’s building a “more intelligent and connected” omnichannel network enabled by more use of data, more intelligent software and automation. That, in turn is expected to improve in-stocks, inventory accuracy and flow as well as better serve the needs of customers, whether they shop in stores or online using pickup or delivery, according to the company.

Increased use of robotics will create a more efficient and more capable supply chain network, according to Walmart. / Photo courtesy of Walmart

“We’re now in a phase that is less about scaling store pickup and delivery, e-commerce assortment and e-commerce fulfillment center (FC) square footage and more about execution and operating margin improvement,” McMillon told investors at the event on Wednesday. “Sorting out which part of an order comes from a store or club, which part comes from an FC, and how they work together to enable a delightful customer experience requires a supply chain that is connected from a data and software point of view.” (Event transcript provided by AlphaSense.)

Walmart said that on Tuesday it gave investors a peek at its regional distribution center in Brooksville, Florida, as an example of its vision for a scaled system of supply-chain capabilities leveraging data, software and robotics. Through automation and other technology, the facility’s increased item storage yields a more consistent, predictable and higher-quality delivery service to stores and customers and responds more nimbly to customer demand, the retailer noted.

“We’re now able to fulfill customer needs with a flexible, connected omnichannel network enabled by data. Membership is the customer’s preferred way to pay for delivery, and it creates a lot of opportunity for us. It deepens engagement, helps enable personalization and enables us to offer more services to our members,” McMillon explained at the investor meeting.

“Bringing this all together to unlock a new phase of growth requires putting the customer member first and then working backwards to optimize the math, the financials. We’re doing this today, and we see the improvements in efficiency and margin,” he said. “We see the opportunity to accelerate that progress with investments in supply chain automation, which includes data, software and robotics that will improve item accuracy, in-stock levels, unit economic costs and delivery speed. The combination of sales growth, productivity improvements and business mix changes will enable us to grow profitability faster than sales.”

Last May, Walmart said it plans automate all 42 of its regional distribution centers under an expanded partnership with AI and robotics specialist Symbotic. Then in June, Walmart reported that it purchased a 62.2% stake in Symbotic.

With more automation, Walmart said it expects less of a need for physical labor but noted that new roles carry higher pay and could create more jobs, based on changing needs. / Photo courtesy of Walmart

Later, in October, Walmart announced a deal to acquire grocery automation specialist and partner Alert Innovation. Walmart and Alert Innovation have partnered to customize technology for the retail giant’s market fulfillment centers (MFCs) since 2016 and started piloting Alert’s Alphabot System in Walmart’s first MFC in Salem, New Hampshire, in 2019. The MFCs, formerly known as local fulfillment centers (LFCs), serve as automated fulfillment facilities inside stores, which Walmart has positioned as a linchpin of its last-mile strategy. In 2021, Walmart unveiled plans to add more of these micro-fulfillment centers to more of its stores via partnerships with Alert, Fabric and Dematic.

“Combine our physical footprint from stores, clubs and our supply chain with new services and better technology, and you get the leading omnichannel retailer globally,” McMillon said to investors.

Walmart reported that increased automation will mean a lesser need for physical labor,  yet the retailer noted that the transition stands to create new roles that carry a higher rate of pay and potentially could lead the company to add more jobs depending on its needs.

“Automation enables us to improve our throughput at lower cost and to change how our associates work in new and better ways,” Walmart Chief Financial Officer John David Rainey said at the event. “Most notably, it allows us to reallocate labor hours closer to the customer to improve both the customer and associate experience.”

Late last month, Walmart confirmed plans to lay off over 2,000 workers at e-commerce fulfillment centers in five markets. Based on Worker Adjustment and Retraining Notification (WARN) notices and published reports, the fulfillment center cuts include 1,047 jobs in Fort Worth, Texas; 597 in Bethlehem, Pennsylvania; 400 in Davenport, Florida; 201 in Pedricktown, New Jersey; and an undisclosed number in Chino, California.

“Customer expectations are changing, and we are moving quickly to meet and exceed their needs,” a Walmart spokesperson said in a statement to WGB at the time. “As demand grows, we are maximizing our network of stores and fulfillment centers, to deliver items for online customers, when and how they want them.”

The spokesperson added, “We’re working closely with affected associates to help them understand what career options may be available at other Walmart locations.”

Walmart, too, has pruned its store base. In late March, the retailer confirmed it plans to close 15 underperforming stores this year in 12 states and Washington, D.C.