Walmart now employing automation, higher profits targeted

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Walmart — The economic landscape has shifted amid inflation and interest rate hikes, prompting companies to change their strategies.

Multinational retail company Walmart has been accelerating its use of automation across its supply chain, hoping to increase profits.

The future of Walmart

Last week, Walmart previewed how it plans to use automation during an investor event.

Automation would allow the company to quickly and cheaply manage inventory, stock shelves, and keep up with online orders.

The company brought investors to a tour of a 1.4 million-square-foot facility in Brooksville, Florida.

The facility is the first automated distribution center for packaged foods and other household items for shelves.

Furthermore, Walmart plans to add the same automation from Symbotic to all 42 regional distribution centers.

Symbotic is a warehouse technology company the retailer giants took a majority stake in 2022.

The company said that over a third of its stores would get the distribution from automated facilities by the end of January.

A broader plan

Walmart’s automation is part of a broader plan to increase profits.

According to CEO Doug McMillon, the company’s revenue will grow about 4% year-over-year in the coming years.

The number still marks a slower growth rate than the 8% it saw in the past three pandemic-fueled years.

However, it is still faster than the 3.1% and 3.6% growth posted three years before the pandemic.

McMillon also said he expects profits to grow at a faster pace than sales in the next five years as Walmart prioritizes automation while growing higher-margin services like:

  • Advertising
  • Last-mile delivery
  • Fulfillment services

New ways to shop

Doug McMillon said Walmart had given customers more options to shop online and get their purchases faster.

The company now offers more general merchandise, like exclusive brands in different categories.

Additionally, the company has more sellers that joined its third-party marketplace.

“We’re now in a phase that is less about scaling store pickup and delivery, e-commerce assortment, and e-commerce FC [fulfillment center] square footage and more about execution and operating margin improvement,” said McMillion.

Walmart is anticipating over two-thirds of its stores to be serviced by some kind of automation within three years.

Over 55% of fulfillment center volume will move through automated facilities, that unit cost averages could improve by around 20%.

A shift in workforce

Walmart is known for being the United States’ largest employer, and the push for automation could render some of its 1.6 million roles obsolete.

Only a few people were present on the distribution center’s floor during the Brooksville facility tour.

However, the overall headcount has remained the same.

According to David Guggina, the executive vice president of Walmart US supply chain operations, automation is about increasing capacity, not cutting the workforce.

Guggina said retention has improved as work isn’t as physically demanding.

While he declined to share the specific turnover numbers, he said the first year after the facility’s automation hasn’t seen any employee leave the job.

Meanwhile, Doug McMillon is anticipating the retailer’s workforce to stay the same size.

However, he noted that its composition would change.

For example, Walmart might need fewer people to unload pallets at warehouses but instead require more people to deliver online orders.

Layoffs and automation spending

Walmart recently laid off hundreds of workers across the country.

McMillon explained that the layoffs came after a surge of online sales during the early years of the pandemic, with the company trying to understand what its sales trend would look like outside the holidays.

Walmart has yet to share how much it would spend on automation projects.

However, Chief Financial Officer John David Rainey said last week that the company expects its capital expenditures will be slightly higher than in 2022 – roughly 2.5% to 3% of sales.

Rainey also said 90% of the company’s capex would be in high-return areas, namely e-commerce, store investments, and supply chain.

Changed routines

With Walmart planning for a more extensive rollout, some employees have already shifted their routines.

James Molina shared his experience with the organized tour, saying he started working at the Brooksville distribution center in 1995.

He said that for years, he kept track of inventory traditionally, growing tired from lifting heavy boxes with a pallet jack or operating a forklift.

However, with automation, Molina can watch the robots unload the truck, intervening if he sees a problem.

Scanners can keep count of the items, so he wouldn’t need a pen and paper.

Additionally, Molina can leave work without feeling exhausted, giving him the energy to coach high school soccer.

“I even kick the ball sometimes,” said Molina.

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