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When you think of Walmart, you probably picture a gargantuan big-box store stuffed with groceries, clothes, and, well …. just about everything. And that image would be fair - Walmart operates 10,500 stores in 19 countries and serves nearly 240 million customers each week.

It is also the second largest online retailer in the US just behind Amazon where it has more than 150,000 third party sellers. And up until last quarter, it was actually the highest-grossing retailer by revenue - now edged out by Amazon.

TLDR; Walmart is a retail juggernaut - both offline and online.

However, what if I told you the most interesting sector for Walmart right now is a segment that’s producing ~1% of their total revenue. Yes, that is right. Just 1%.

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Over the past few years, one of the biggest trends in retail has been the Retail Media Gold Rush. As advertisers scramble to adapt to a world without third-party cookies, first-party data - the data that companies collect directly from their customers - has become the most valuable currency in digital marketing.

And guess who’s sitting on mountains of this data? Big Retailers!

Like every other big retailer, Walmart has a treasure trove of customer shopping data - like my guilty love for Spicy Nacho Doritos.

This gives retailers a huge advantage over advertising giants like Google and Meta. Why? Because people come to them to shop. Google and Meta rely on behavioral data to predict what you might want, while retailers already know what you buy.

From my article on the rise of Amazon Advertising:

Just like Amazon, Walmart is also turning this data into ad dollars.

Enter Walmart’s advertising business, known as Walmart Connect. The Boys at Bentonville started doubling down on digital advertising in 2021 which has resulted in creating a multi-billion dollar retail media business which is also one of the fastest growing segments of the company.

Walmart’s ad business has been growing at roughly ~30% YoY over the past couple of years which is very impressive to say the least. Walmart doesn’t usually disclose the segment’s revenue numbers but the business was generating $4.4 billion at the end of 2023. Now, that might not seem like a lot when you compare it to Walmart’s total revenue of $648 billion for the same year.

But here’s the kicker: That $4.4 billion - which accounts for just 0.67% of the total revenue; contributed almost 33% to Walmart’s total profits.

Closed-Loop Measurement

Every week, Walmart sees almost 139 million walk through its doors or shop online in the US. That’s a mountain of data on what people buy, when they buy it, and how often they come back.

And thanks to Walmart’s app, website logins, and Walmart+ memberships, all of that data can be tied to individual customers - letting Walmart target ads with precision and, more importantly, track whether those ads actual lead to sales.

So, how does Walmart Connect work?

It’s simple: Brands can buy search and display ads on Walmart’s website and app, just like they do on Amazon. But they can also buy in-store advertising such as self-checkout screens, Walmart Store TVs, or even ads while playing on Walmart Radio while you’re deciding which cereal to buy.

What makes Walmart’s ad business unique is what they call Closed-Loop Measurement. 

Here’s the big challenge with digital ads:

• Google and Meta can track if you click an ad and buy something online.

• But what if you see an ad for, say, a new flavor of Oreos - don’t click it - but then buy it in-store three days later?

Most advertising platforms cannot connect this dot. Walmart, however, is not most advertising platforms. Since Walmart owns both the ad platform (Walmart Connect) and the point of sale (its online and offline stores), it can track the full journey:

1. You see a Walmart ad on your phone.

2. You don’t buy immediately.

3. A few days later, you go to Walmart and pick up those Oreos.

4. Walmart knows that ad worked.

This is the holy grail of advertising: Knowing literally where every single penny went.

In a competitive retail media landscape, this gives Walmart a huge edge. Sure, competitors like Amazon also have rich first-party data, but Walmart can uniquely tie in brick-and-mortar shopping.

The TV Gambit

But Walmart isn’t stopping there. It’s taking its advertising ambitions beyond stores and websites - to your living room.

Last year, Walmart dropped $2.3 billion to acquire the smart TV brand - Vizio. And I have to admit, when I first heard that, my reaction was: Wait …. Walmart bought a TV company? 

At first glance, it felt weird to me. Why would a retailer buy a TV company?

Especially when Vizio loses money selling the TVs. That’s right - Vizio actually loses money on each TV it sells. So, what’s the deal?

Well, that’s when I realized how Vizio really makes money - not just by selling TVs, but by selling ads. And while their ad business is smaller than their hardware sales, it’s way more profitable - to the tune of $356 million in net income from ad revenue last year.

Because in today’s world, smart TVs don’t just show content - they also collect data:

• What you watch

• When you watch

• How often you watch

And now? Walmart owns all this data.

With Walmart in control, these Vizio TVs can deliver personalized ads and more importantly, track whether those ads lead to Walmart purchases - just like its stores and E-commerce platform already do.

But here’s where it gets even more interesting. Walmart could take this one step further - by making the TVs ridiculously cheap.

Think about it - if Walmart subsidizes these TVs and sells them for dirt cheap, what happens?

• More TVs in more homes → More ad inventory

• More ad inventory → More brands buying ads

• More ads → More revenue

Brick and Mortar Stores - An Asset; Not a Liability

Walmart’s ad business isn’t the only thing booming. Its e-commerce empire has exploded, too.

In just five years, Walmart’s online sales have skyrocketed from $25 billion to $100 billion annually, cementing its spot as the #2 e-commerce retailer in the U.S.—right behind Amazon, of course.

But Walmart’s e-commerce success isn’t happening in isolation. Another key player? Walmart+—its $98/year subscription service that offers perks like free shipping, unlimited free deliveries from stores, and even discounted gas. Sound familiar? Yep, it’s Walmart’s answer to Amazon Prime.

In 2024 alone, Walmart+ generated $3.8 billion in membership fees. Like advertising, this is a high-margin business, adding a nice boost to Walmart’s bottom line.

For years, Walmart’s massive offline presence was seen as a liability. In a world shifting toward digital, thousands of physical stores looked more like a burden than a blessing. However, Walmart’s ability to scale its E-commerce and Advertising operations so rapidly is I believe is deeply tied to their ingenious utilizing of their stores.

Now, I don’t know how many of you know this but ~90% of the US population lives within 10 miles of a Walmart store. Just 10 miles!

Firstly, that fact itself is bonkers, at least to me. Secondly, this proximity gives Walmart a built-in advantage for fast and cost-effective online order fulfillment. Instead of spending billions on warehouses like Amazon, Walmart turned its 4,700+ U.S. stores into fulfillment hubs.

The result?

• Same-day delivery now reaches 93% of U.S. households.

• Almost all Walmart Supercenters now offer curbside pickup.

• Online orders are often fulfilled from a nearby store rather than a distant warehouse—shaving days off delivery time.

This omni-channel cohesion is something that Amazon simply cannot match.

Amazon’s Flywheel But With A Twist

Walmart’s sudden surges in E-commerce, membership and advertising are not coincidental - it’s a deliberate strategy adopted by Walmart to mimic Amazon’s famous flywheel growth.

Traditionally, Walmart grew through its physical retail prowess, but more recently it began explicitly adopting a tech-style ecosystem strategy, similar to what made Amazon so successful.

At the heart of Walmart’s flywheel are its E-commerce and marketplace operations. By greatly expanding online assortment (through third-party sellers) and offering conveniences like free delivery via Walmart+, Walmart attracts more customers to shop on its platform.

More traffic and sales on Walmart’s site then entices more sellers to join the marketplace, further expanding product choice. As the marketplace grows, it generates more advertising demand - many of those sellers purchase Walmart ads to boost their visibility.

The rising ad revenues and subscription revenues (from Walmart+) increases revenue that Walmart can then re-invest into lower prices, better technology and logistics, which in turn improves the customer experience and ultimately draws even more shoppers.

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