Walmart has some data they'd like to sell you
Walmart has always focused on driving down prices for customers in part by driving down costs for marketers. But now earth’s biggest retailer is moving into selling data and analytics in a way that means brand marketers will likely pay more for sales, promotion and other data and analytics they’ve long gotten for free.
The retailer began staffing a new Walmart Data Ventures (WDV) unit late last year that currently has nearly 20 job postings on LinkedIn, mainly for software, data analytics and other tech roles in Dallas plus management and business development jobs aimed at developing and selling data and services for marketers. The birth of WDV comes as Walmart’s Sam’s Club unit prepares to move a lucrative piece of its data and analytics business from NielsenIQ and Advance’s 1010data unit to a yet-unnamed outside party.
The potential opportunity is huge. One Walmart and research industry veteran cites a rule of thumb that a retailer can generate $1 million in data and analytics revenue for every $1 billion of sales. For Walmart, that could mean north of $400 million annually in the U.S. alone from its namesake stores and Sam’s Club unit.
Starting WDV comes as Walmart looks for higher-margin media and marketing revenue to make up for the fact that the fastest-growing part of its business—e-commerce—still isn’t profitable. Walmart executives in a fiscal first-quarter earnings call last month pointed to the rapid growth of the Walmart Connect in-store and online media business in the U.S. and similar media businesses in Mexico and Canada as profitable offsets to rapid if unprofitable e-commerce growth.
Other retailers such as Kroger Co. already monetize their data extensively and profitably, in part through direct sales of services and in part to help drive media and promotion program sales. Amazon doesn’t sell data and analytics directly but uses access to it to incentivize increased spending on its fast-growing ad business. And all major retailers are seeing the value of their customer relationships and the first-party data they generate soar given the impending loss of third-party cookies as a tool for targeting ads.
Walmart’s impending move is raising concerns among suppliers used to the retail giant providing data mostly for free in return for the idea that better-informed suppliers would be more efficient and create stronger merchandising and marketing plans that drive higher sales. The move also could mean Walmart squeezing more money out of marketers to the detriment of smaller grocery and other retail competitors as Congressional antitrust scrutiny of big retailers grows.
Walmart declined to comment on Walmart Data Ventures beyond recent public comments from CEO Doug McMillon and on recent developments with a Sam's Club data program below.
One supplier rep recalls getting chills upon hearing this remark from McMillon on a February earnings call:
“Data is obviously really valuable, and we’ve got a history of giving our data away to suppliers, and doing that so that we could get in stock. And that’s obviously really important, and some portions of our data will continue to be free, because we need their help serving our mutual customers. But there are other aspects of our data that are really valuable and can be put to work in ways that we haven’t before. And the concept of building products, digital products that we can use internally and also monetize outside, is a really exciting prospect. And some of those things will be purely digital, some will be a combination of people plus digital.”
If that sounds vague, it’s because the effort is still in its infancy. In December, WDV hired as its chief Mark Hardy, a former CEO of retail virtual reality firm InContext Solutions, who more recently, according to his LinkedIn profile, was CEO of commercialization for Walmart’s Intelligent Retail Lab in Levittown, New York, a proving ground for using artificial intelligence and other tech solutions in retail merchandising and marketing.
Job descriptions on LinkedIn point to WDV looking to develop new data and analytics tools – and Hardy’s background suggests an ambition to forge new paths in marketing analytics rather than just get money for what Walmart now gives away for free. But Walmart's moves still have some suppliers talking nervously—and not for attribution—about the prospect of paying more for what they’ve been getting free for decades through the retailer’s Retail Link data and analytics system.
Retail Link is about as legendary as a retail and marketing collaboration tool can be. It was launched in 1992 and championed by Walmart founder Sam Walton as a way to share and analyze sales, inventory and trend information with suppliers for free. Lately, people familiar with the matter say Walmart has been discussing with key suppliers what appears to be a successor system, for which the retailer in March filed for a new trademark—Luminate—that’s likely to be more sophisticated but much less free. Walmart has kept discussions under non-disclosure wraps so tight that it gets notified automatically should anyone try to grab screen images.
Lucrative trip to Madrid
Walmart took an early step to monetize Retail Link and its data trove three years ago when Sam’s Club turned to Nielsen (now NielsenIQ) and 1010data to create and sell the system known as Madrid (for Member Analysis, Data Reporting and Insights Domain). It replaced capabilities suppliers formerly used inside Retail Link for free.
If Madrid was a test of whether marketers would pay for what they used to get free from Retail Link, it was a resounding success. Nielsen and 1010data reported last year, in an announcement that they were expanding their partnership, that Madrid had 850 clients and 2,400 users. A LinkedIn profile for NielsenIQ’s VP of Sam’s Club client services says Madrid represents a $40 million annual business for NielsenIQ alone.
Given the likelihood that 1010data’s share adds millions more in annual revenue, and considering Sam’s Club's $64 billion in annual sales, a former Walmart executive says NielsenIQ’s reported take appears in line with the rule of thumb that retailers can generate $1 million in data revenue for every $1 billion in sales.
Even for a retailer with a better-than-average 4.5% operating margin, that represents a potentially nice 0.1% bump at a time when e-commerce growth is pushing margins the other way.
It’s unclear how much of Madrid’s revenue goes to Sam’s Club. But about 70% of the revenue from such tools typically flows straight to the retailer, according to an executive familiar with the research industry, as opposed to a lesser 50% cut of revenue from sales of retailer point-of-sale data.
Walmart hasn’t moved to make Retail Link data and analytics for the more than 4,000 U.S. stores and growing e-commerce business under its main nameplate unit pay for play – yet. That bigger data set covering $370 billion-plus in U.S. sales would likely be far more lucrative, though Sam’s Club has the benefit of full visibility into each member’s shopping and spending patterns in a way that Walmart only gets from e-commerce and the estimated (per a recent survey by Morgan Stanley) 10 million members of its Amazon Prime-like Walmart+ program.
Sam’s business in play
Recently, after McMillon’s February riff on data monetization, Sam’s Club announced to suppliers that it will end its relationship with NielsenIQ and 1010data on Dec. 1, without saying how they’ll be replaced. That led to speculation that Sam’s Club may take the whole Madrid system, and all the revenue from it, in-house.
But a spokeswoman for Sam’s says the retailer will move to work with another, yet unnamed, partner for the system. And it will continue to provide syndicated retail sales data to NielsenIQ.
A NielsenIQ spokeswoman says, “We cannot comment on our clients’ internal decisions. However, NielsenIQ continues to have a data cooperation relationship with both Sam’s Club and Walmart.”
The $40 million annual Madrid business represents about 1.3% of NielsenIQ’s overall revenue as it stood last year when it was still operating as the Nielsen Connect unit of publicly traded Nielsen. It was sold by Nielsen in March to a private equity group led by Advent International. Madrid’s $40 million appears to represent nearly 5% of the profitable “Plan/Activate” portion of that business, which reported overall operating losses the past three years thanks to the fiercely competitive retail syndicated sales data or “Measure” business.
Executives of Advance’s 1010data didn’t respond to email requests for comment. Interestingly, one of the earliest hires at WDV in April was a former 1010data executive as director of business development, per his LinkedIn profile.
A spokeswoman for IRI, seemingly the most logical successor to NielsenIQ and 1010data on the Sam’s Club business, declined to comment. IRI runs similar “collaborative gateways” for Kroger, Costco, CVS and Walgreens Boots Alliance. Kroger’s system, like Sam’s, has spawned grumbling among marketers about costs, though they need to use it anyway, said one research industry consultant.
Kroger’s model appeals
Kroger is in many ways the poster child for data monetization among mass retailers with its large and lucrative 84.51 business. Kroger executives in recent months have said media, data and analytics have been the key pieces of an “alternative profit” pool that brought $100 million in incremental profit in 2019, $150 million last year and should bring another $150 million this year, all of which help offset losses and investments in its growing e-commerce business. That’s just profit, not revenue, which Kroger doesn’t disclose for 84.51.
Walmart, whose U.S. sales (including Sam’s) are more than three times that of Kroger, conceivably stands to make far more. But while Kroger captures sales data it can directly link to households across nearly 98% of its sales thanks to its loyalty program, Walmart doesn’t have a loyalty program. Still, its fast-growing e-commerce sales capture growing amounts of customer data.
Operationally, Walmart likely has or can soon develop the know-how to monetize its data effectively and make lots of money, says Burt Flickinger, principal of consultancy Strategic Resource Group. But he still thinks it’s a bad idea, in part because it strays from the everyday low price/low cost model that has driven Walmart since its founding.
Fast-growing tech platforms have largely steered clear of turning sales or customer data directly into profit centers. Amazon leaves the analytics largely to its suppliers or third-party firms, albeit making more data such as competitive category sales available for bigger spenders on its ad platforms. Google leaves analytics of its ad business to certified third-party firms, letting them reap the revenue in hopes that it will drive better ROI analytics for marketers that in turn drive more media spending. Walmart should probably stick with a similar approach, using access to data and improved analytics tools to drive more media spending, which could boost sales growth for the retailer and brand marketers alike, said one veteran of the company. Already, Walmart Connect offers its highest levels of data access and service to marketers who spend at least $35 million on its platform, say people familiar with the matter.
Straw that breaks the camel’s back?
Flickinger also believes Walmart’s more aggressive efforts to monetize data could be “the straw that breaks the camel’s back” on antitrust issues for the retailer.
“Walmart is making record amounts of money, and it’s exactly the wrong time, when there are already bipartisan meetings [in Congress] to consider antitrust investigations,” Flickinger says. The Biden administration, he says, will be inclined to focus on practices that disadvantage smaller retailers with unionized workforces.
Already, he says, the National Grocers Association, which represents smaller grocers with a combined but highly fragmented $25 billion in sales, has been complaining loudly about Walmart and other retailers using their clout more boldly than ever to get unfair advantages on promotion spending, pricing and product delivery amid supply chain problems during the pandemic.
Those practices could be potential violations of the Robinson-Patman Act, a 1930s antitrust law that prohibits suppliers from giving better promotional allowances or prices to bigger retailers, Flickinger says.
But antitrust lawyer Steve Cernak of Bona Law says that while Robinson-Patman or other unfair competition enforcement actions or lawsuits are theoretically possible, they’re highly unlikely to succeed. Robinson-Patman has rarely been used by the federal government or private litigants in recent decades. And it’s unclear that the law’s provisions requiring suppliers give to retailers large and small equal access to promotion allowances would ever apply to payments for media or data, Cernak says, adding that money flowing through third parties like NielsenIQ or IRI make such cases even harder to prove.