Walmart is an operationally excellent company, and they've always competed by what's called EDLP, which is everyday low price. You can always expect to get the lowest price at Walmart, because their whole system is to get cost out. They are a traditional retailer and they're going to make money on their transaction. The reason they can offer lower prices, they have the best costs. You can look into the supply chain and other kinds of courses to understand how to become operationally excellent. But that is basically what Walmart's strategy is. Now, they were the best in the world on this operational excellence, but as retailing got more competitive, they weren't the best in the world on frictionless. Now, this quadrant became important partly because of Amazon. In order to compete against Amazon, they had to leverage their operational excellent position and become the best at frictionless. They have to move to not only be good enough at frictionless, they weren't even good enough at frictionless historically, but to become good enough at frictionless and then become the leader at frictionless. Where Walmart is competing now on my matrices, it's lowest price, leveraging that operational excellence and to be the best at frictionless. How did they do that? Well, a few years ago they started by buying jet.com for $3.3 billion. That got them up to speed very quickly on e-commerce, and they bought in a whole new platform, a whole new expertise and a whole new set of customers. They leveraged that expertise, their customers that came along with jet.com and the merchants that came along with that platform and they built up Walmart.com, to what it is now very, very state of the art. Walmart now has an excellent e-commerce system and they didn't used to, but they got up to speed and they're really delivering to that. They are omni channel, the seamless integration between their physical stores and their online and their state of the art online. But they also offer convenience in a different way. Now, one of the things that's really a strength of Walmart is their stores and sales associates. Ninety percent of the US citizens live within 10 miles of a Walmart. That physical store becomes a really big asset in delivering convenience. They started before COVID, and accelerated during COVID, the idea of buy online, pick up in the store. While you're driving around, if you live in a community where you're in your car all the time, picking up at a Walmart at an appointed time, is actually more convenient than getting the product delivered to your door. They are now redefining what frictionless means by building on their assets. But the buy online pick up in the store idea, makes it have to be that you've got seamless integration between online and offline. That is very important. The idea of omni channel and they really leverage that to be the best here. Very recently or in December, I forget exactly when it was maybe December 2020, they introduced their Walmart loyalty program, which is copying Amazon's program, and you can now get delivery for a certain price and all sorts of things that you can get through Amazon's program you can now get through Walmart's program. Now they're getting the data in a sophisticated way that they need to get in order to deliver to customer value. They are competing in these two quadrants. They're good enough at branch. You don't want to go to Walmart for a luxury product, but they are trying to get up to what it's going to take to offer product assortment by offering a Walmart marketplace. If you can't find what you want in the store, you can find it online. They're bringing in other third party sellers to offer the assortment that they need to compete. But they're just trying to be good enough on product at this point. Their store experience is fine. They're trying to make that good enough. Make sure you trust it that, the increased pleasure, that it's fine, but they're not going to be an Eatery, so to speak. That's Walmart's strategy. As they go forward, they're going into other industries. They're going into pharmacy, they're going into health. They're going into insurance. They're going to other types of industries. They're going to be one stop shopping, a very generalist retailer. Those are the two really big players. Amazon and Walmart, they sell everything, they're the everything store. They were very strong going into COVID. They pivoted and adjusted to COVID changes and they are very, very strong coming out of COVID. Target, also did very well. Now, Target got a different strategy. Let's talk a little bit about COVID Target. Many people talk about Target as their favorite store. I was walking down the street in New York City. I saw a little kid jump up and down and yelled to their mom, "Look, look, look, there's a Target." I was shocked to see somebody that excited about the store like Target. What does Target do that creates so much fun and so much pleasure? Well, first of all, their stores are very well designed. One category flows into the other category. They have really wide aisles. They have very good signage. They have very good lighting. The lighting is not only bright, but if you start to look at their fixtures, you see the fixture shows you where to walk in the store. They use color very well. Lots of aspects about visual marketing, Target is a genius at that. They understand the importance of the sales associate in the store, so they make the sales associate very easy to identify that they all wear red shirts so you can see them very easily. The in-store experience is fun and terrific. They also have great products. Now, they're in everyday low price merchants. The products are at a lower price point than, say, a luxury product. But the idea of design, Target is just funkier, more designing, and they also collaborate with other brands to bring fun into the store. They had a collaboration with Missoni, which was so successful. Missoni is a luxury brand that it broke the Internet at the time people wanted all those products right away. They've had other very, very successful partnerships with fun brands that bring people into the store. They also have partnered with Apple, so they have Apple within the store and another very, very strong retailer is Ulta and Beauty and Cosmetics, and they've partnered with Ulta in Target stores. Target offers a really fun in-store experience and really, really great brands and products, particularly for their price point. They are convenient and low priced, but they really differentiate themselves within their category on amazing products, amazing store brands, amazing partnership, and a really fun in-store experience which now extends to omnichannel. What have they done during COVID? They were in the right place at the right time again because they were considered an essential retailer so they could stay open, but they really had invested in improving their omnichannel experience. They are building more stores. They're building more of their small footprint stores, which they build in cities and on campuses. They're building better buy online, pick up in the store facilities. They're building better distribution centers, they're building better sorters, they're opening stores where they need them, and they're really, really investing in the idea of omnichannel. Having the right store, combined with the right online experience, make it seamlessly integrated between the two and offer as much convenience as customers are demanding. In Target's case, offer the best in-store experience, the best brand, the best product, and they're on the top. Within their segment, they're on the top. They're good enough at price to compete with the Walmart and the Amazon is good enough at convenience with buy online pick up in the store. But the reason you're going to pick a target is because it's fun to shop at Target and they have fun private brands and fun partnerships. Let's look at Costco, a very different retailer. They started as a warehouse in1983 in Seattle. It was a membership club. Costco makes a lot of their revenue on subscription, on membership dues. By making a lot of their revenue on the subscription price, they can reduce the price of the goods. This is along the lines of what I was telling you Amazon does. They can offer you a very low price, not necessarily because they have their costs as low as Walmart does, but because they're making revenue on membership. They can also because they have such big market presence and they are so big, they can buy in bulk and they can get very good cost on the products they offer. Then they can use their clout and their size to make sure that those products are offered in their membership clubs at very, very low prices. They can guarantee the lowest price, but with a different strategy than maybe Walmart uses. Now, the tray up in Costco is they don't have a broad assortment. They actually curate the assortment, and some people think of that as an advantage. A Costco would typically stock about 4,000 items, where a Walmart supercenter might carry 140,000. That's a really big difference in the size of assortment. But Costco has made that in an advantage, not a disadvantage. In addition, Costco hasn't implemented what's called a treasure hunt strategy. Twenty percent of Costco's inventory is not available the next time you go there. Costco trains you. If you see something that you think's really cool in a Costco, you better buy it right now because it may not be there the next time. That's a treasure hunt type of strategy. What does Costco do? Costco delivers on lowest price, but they use it in a different way. They do it by making their revenues on subscription and by using their clout to buy in bulk and to offer lower price, on the items that they purchased. It's not necessarily through an operationally excellent strategy. Then they are amazing merchants. Costco have just the right products. Who knows how they figure out exactly what I'm going to find so exciting in the store? They also leverage that with a treasure hunt experience. The Costco experience is just great fun to do it. People who are loyal to Costco love the low prices. They don't mind buying in bulk and they love the in-store experience. That is where they are winning. Now, Costco was not the best at brand and product assortment in that they don't have all brands that you might want and they don't have all products you want. They have a limited assortment. I've got to put that at below fair value or just add fair value. It's not a leadership strategy, but they have turned it around to make it something exciting. They also were not the best of frictionless. During most of COVID, they were not as fluid and as great online as their competitors were. During most of COVID, they did not have buy online pick up in the store. They are just now at the end of 2020-2021 offering online, buy online, pick up in the store, and curbside delivery, but that's just starting. Their delivery system, they partnered with Instacart, so they were doing things that were not as great in the frictionless category. Again, this shows you, you don't have to be the best at everything. In fact, if you try to be the best in everything, you're not going to win, because you don't have the resources to do that. Most important about my metric is what you choose to be the best at, and what you choose to be good enough at. It's very important to take that away. You've got to be the best at something, but everything else, you just should be good enough at. Do not try to be the best at everything. You will not win. Even these huge players are not the best in everything. Just to some data to show you, Costco did really well during the pandemic. Even though everybody's moving to online shopping, people are shopping in Costco and you can see how much their comparable store sales went up, which is change from year over year from previous year during COVID skyrocketed up even without their strength in digital marketing. Very, very interesting. TJ Max, also. TJ Max and Burlington, which are both these off-price retailers, they buy in bulk. They manage their costs by really having state-of-the-art automated distribution centers. It's very, very sophisticated what they do with their distribution center. They offer very, very low prices, as much as 60 percent off manufacturer's suggested retail price. They sell items at a very good price and they can sell items that are in season. They do not just sell out-of-season items. They have some of those out-of-season items, but because of their clout and because of their importance, they have trade centers and they buy products that are in season that you can get at very cheap prices. But because they are selling at 60 percent less, then these branded products sell at other retailers. They are not allowed to advertise what brands they have and it becomes a treasure hunt. You have to go into the store and find the good deals. Therefore, they don't have robust online service. Even in this world of COVID with the acceleration to digital, these retailers like TJ Max and Burlington do not have the world's best digital service, and they don't buy design. First of all, their stores are treasure hunts. You never know what you're going to find. Now, in order to do that online, you would have to just constantly be taking pictures of product, rearranging your website all the time. It's very hard to manage that website in real-time. The other thing is, if you made it very easily searchable online, the brands that are willing to sell some product in these channels would not sell their product at 60 percent of their price if it was easy to find. They can't develop a convenient, frictionless online presence because that is not the model that they're presenting. Their model is about treasure hunt. It's about finding what you want. Your fashionista, you find your sophisticated shopper, you know what you're looking for. That's exciting to many shoppers, and they offer very, very low price. They are not state of the art on digital. Very, very interesting. The other retailer I'll just highlight here, which is in a different categories, Home Depot. Home Depot is a little bit resistant to Amazon because the categories that they sell are not the ones that Amazon's interested in. Home Depot competes on low price and they compete on really good products and they compete to the do it yourself segment. But they also compete to contractors and to small businesses, people who have trucks and so buy online, pick up in the store is very useful at Home Depot. They've developed a very good online presence and then they have services in-store, so that makes it very easy to buy in line and pick up in the store with your truck. They also have really gone above the expectations to some degree on in-store experience by offering guidance and help to the do it yourself segment, as well as to the contractor segment. They're doing very, very well as well, competing in a different way, but again, being the best into and leveraging those advantages to keep up on what the COVID and changing society, and changing expectations have been on the other two boxes.
