Inside Store No. 8, Walmart’s incubator that is testing VR and conversational commerce

As Amazon, Alibaba and other e-commerce platforms grow their reach among online shoppers, large retailers are testing how technology can help build a more digitally connected experience for customers — whether they’re in the store or at home. For Walmart’s Store No. 8, its startup incubator that was launched last year, conversational commerce and VR are two areas of focus.

Katie Finnegan, principal of Store No. 8, said it’s not just about reacting to Amazon but zeroing in on which technologies will enhance the customer experience of the future. Through Store No. 8, Walmart is looking to the needs of mobile-first consumers who use internet-connected devices in their homes.

“Our strategy is really about playing offense; it’s about doubling down on our competencies and where we see a differentiated experience,” she said.

Legacy retailers are increasingly investing in startups — sometimes through in-house innovation labs like Lowe’s, and partnerships with tech accelerators as Target is doing with TechStars Retail. Walmart uses in-house labs (Walmart Labs) to address near-term customer experience needs (a six- to 12-month time frame), but Store No. 8 looks at longer-term trends that will bear fruit in at least three years. While Walmart keeps Store No. 8 separate (it’s an LLC of its own), portfolio companies are wholly owned by Walmart. So, instead of investing in these companies as a venture capitalist would, performance is measured by what it calls “operational and strategic returns” — in other words, how these tools may be useful for a future customer experience — rather than profitability.

Walmart is testing personalization of the customer experience through automation and visualization, tools that help free up in-store associates to handle more value-added tasks. Jetblack, a service currently in beta, lets customers engage in text conversations with the retailer to determine the kinds of purchases that fit their product preferences and delivery timing requirements — a form of curation that doesn’t require human intervention. Finnegan said the natural path for the technology’s evolution is to move toward a voice-based interface. For Spatialand, which has yet to release a product, the concept is around helping customers visualize how they will interact with a product, which will go much further than trying it in the store.

“Think about getting into a kayak and virtually getting out on the river,” she said. While VR technology can first be rolled out in the store, Finnegan said it could be scaled out to customers’ homes with time.

Store No.8 is one component of a bigger innovation strategy to prepare for a future customer experience that will be increasingly digital and mobile. Walmart, like other retailers, is investing in various technologies — both through Store No. 8, Walmart Labs, its in-house innovation lab, and through acquisitions like Jet.com. and Flipkart, it’s placing multiple bets on a range of technologies. Casting a wide net in tech investments is important for retailers as they determine their recipe for differentiating from competitors.

“We can debate on the merits of specific technologies [retailers] are investing in like AR or VR — time will tell,” said Forrester principal analyst Sucharita Kodali. “The truth is that most technologies don’t really change the world.” By investing in a portfolio of companies, retailers are hedging their bets on which ones will stick, she said.

For Walmart, the bigger themes are around how machine learning and artificial intelligence will remove friction points from the customer journey — an area where Walmart, like many other large retailers, has room to grow, said Andrew Murphy, managing partner of Loup Ventures, a Minneapolis-based venture capital firm that invests in retail technology startups. He said many current venture investments in retail technology are focused on computer vision (using cameras and other technology to facilitate Amazon Go-type walk-in, walk-out payments) and voice. Despite retailers’ moves supporting innovation, culture and shareholder pressure may prompt some of them to shy away from taking too many risks as they experiment with new technologies, a constraint Amazon doesn’t have, he added.

“[Retailers] risk not experimenting enough because they’re being too careful being overly protectionistic,” he said. “Investors don’t expect profitability from [Amazon’s experimentation] — they can spend like crazy to experiment with things like Amazon Go.”

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