Walmart is in a bind.
Its retail empire is based on a simple proposition -- everyday low pricing -- but recent surveys show price gaps between it and rivals have actually narrowed or disappeared. And, in fact, most of its shoppers no longer believe Walmart has the lowest prices.
Among the factors that have played into this is technology. Walmart has traditionally been a leader in the space, using its Retail Link sales-data system, for example, to leapfrog rivals by analyzing what is in its shoppers' baskets and capitalizing on trends. But over time competitors caught up with database-driven loyalty programs that direct discounts to consumers on items that matter most to them, making them more targeted and price competitive.
With Walmart same-store sales now starting a third straight year of decline, it's clear the retailer could use another tech breakthrough or two. And it's looking to @Walmartlabs to find it.
The retailer spent $300 million earlier this year to buy Kosmix, a startup best known for an app that tailors Twitter content to users' interests. The app, Tweetbeat, doesn't operate anymore, but the acquisition is really more of a nine-figure investment in retailing, marketing and social-media R&D. Venky Harinarayan and Anand Rajaraman, the entrepreneurs behind Kosmix, now head @Walmartlabs, a 70-person R&D operation based in Mountain View, Calif., as senior VPs of e-commerce for Walmart.
Previously, the two did a lot for Amazon, a Kosmix investor before the Walmart buyout. They created Junglee and sold it to Amazon in 1998, where it became the Amazon Marketplace of third-party vendors that today drives 30% of the e-tailer's sales. They also developed Amazon Mechanical Turk, a crowdsourcing site where people sign up to do small tasks for small payments.
With @Walmartlabs, they have an arguably bolder vision. Mr. Rajaraman says in a quote used in all the unit's job listings: "Social media and the mobile phone will have as profound an effect on the trajectory of retail in the early years of the 21st century as did the development of highways in the early part of the 20th century."
So can @Walmartlabs let Walmart leapfrog over rivals on that road the way the retailer's past tech mastery did?
"I hope so," Mr. Harinarayan said in an interview. "That's a tall ask. But the good news is that the scale is so large that if you can move the needle in a positive direction, the impact is large."
Meanwhile, @Walmartlabs is mixing in some smaller ideas and projects specific to e-commerce, where the giant trails Amazon by at least six to one. Just closing the gap with Amazon wouldn't solve all Walmart's problems, but it would boost sales more than 5%.
"I'm a firm believer when you run a lab, if you are doing only very speculative long-term things, you run the risk of not having wins that help you cement your position in the organization," Mr. Harinarayan said. So in the early going @Walmartlabs is building the next generation of search and "helping with marketing" for Walmart's online properties globally, he said. "Then we also have some much more speculative, strategic, long-term-payback opportunities that involve social media," he said, aimed at creating better shopping experiences online and offline.
In one experimental project expected to debut for the holiday season, @Walmartlabs has been recruiting people to test Shopycat, a Facebook and web app that uses people's social-media profiles and comments to generate gift ideas.
"Most of the recommendation systems you see today in online shopping are based on prior transactions," said Mr. Harinarayan, who worked for Amazon in the late 1990s when its system was developed. The system works well for books, where people tend to buy in the same genres, he said, but so much not elsewhere.
"It's our belief that more than past transactions, your interests and what interests of yours are trending are better predictors of what you'd be interested in buying," he said.
But where @Walmartlabs could have its biggest impact is helping Walmart counteract competitors' loyalty programs and regain lost ground in the battle for price perception, said Leon Nicholas, managing director of Kantar Retail. Walmart has long rejected shopper cards as gimmicky and inconsistent with its everyday low price strategy. But Mr. Nicholas believes @Walmartlabs could develop a program consistent with EDLP and incorporating Walmart.com and mobile devices to provide deals across a wide assortment.
He suggested Walmart program members might input a shopping list and let Walmart.com or its mobile app offer a package deal on select brands that would be lower than buying them individually. It might also be used to compare prices on the basket to other nearby retailers or offer additional deals on bigger baskets. Or, as Mr. Nicholas envisions it, a shopper with $10 or $20 in her pocket could use a mobile app outside the store to ask for the best deal on a bundle of products. Mr. Nicholas called the concept "EDLP for me" and believes brands would pony up trade funds to participate.
"What they can't do is stay in their comfort zone," Mr. Nicholas said. "If Walmart revolutionized sales data through Retail Link, they surely can revolutionize shopper discounts."
But all that would be a tall order, even if it were possible technically.
"At this point, I'd say that 's not something I could comment on because it's not in our direct path," Mr. Harinarayan said.
Walmart U.S. CEO Bill Simon in June reiterated Walmart's longtime opposition to loyalty programs, though a spokesman declined to comment on the "EDLP for me" idea. Others close to the company noted longtime difficulties getting Walmart.com and Walmart to work together, though the retailer has increasingly tried to coordinate online and offline efforts, such as through nationwide "site to store" shipping and a recent management restructuring.
Last month, two top e-commerce executives left Walmart's Brisbane, Calif.-based e-commerce unit, which now reports to Mr. Simon. E-commerce units now also report to the heads of the offline stores in the U.K., Japan and Canada.
In the rest of the world, e-commerce continues to report to Vice Chairman Eduardo Castro-Wright, and Walmart.com has said in job listings it's preparing to step up online-only offerings in the still-vast areas of the world where it has no stores, including continental Europe and much of Asia and Africa.