Walmart estimates automation will trim 20% from the cost of a product
Walmart’s Automated Future Can’t Just Be About Profits
Listening to Walmart Inc. executives talk through the company’s future is a reminder of how difficult the recent past has been. Like a lot of retailers, Walmart was forced to put its e-commerce business into overdrive to meet a pandemic-induced surge in online shopping. It first struggled to fill shelves as shoppers cleared out merchandise and then rushed to shed merchandise when supply chain knots loosened.
Now it says it has big plans to restore operating margins and drive profitability. Over two days this week, Walmart executives outlined their strategy to expand sales by 4% and grow operating income 4% or more over the next three to five years. The company aims to better leverage its online-offline model; diversify income streams; and scale high-return investments. But its most far-reaching tack was automation.
Walmart, the biggest employer in the US, envisions dramatically changing the nature of retail work as it deploys robots to take on more, and more complex, tasks. As a bellwether for the industry, what Walmart does has ramifications for everyone else. On the one hand, its automation investments offer a blueprint for competitors to follow that could reduce costs. But on the other, it could lead the way on how to responsibly manage this new era of job insecurity.
In Walmart’s future vision of the company, people are important but costly assets when compared to newer, and increasingly cheaper, automation technologies. By the end of 2026, roughly 65% of stores will be serviced by automation and about 55% of the fulfillment center volume will move through automated facilities. The company estimates that this would shave about 20% from the average cost of moving a product along its factory lines.
Walmart showcased its supply chain innovation to financial analysts on Tuesday at its Brooksville, Florida, regional distribution center. There, automated forklifts unload trucks and large robots sort cases and ferry them through the 1.4 million square foot distribution center. Such automation helps the company react more quickly to consumer demand and improve its delivery service with consistency and predictability. It also reduces the amount of physical labor involved while increasing pay, said John Furner, chief executive officer of Walmart US. And it helps lower costs, meaning a better return, he added.
Chief Executive Office Doug McMillon has covered this ground before. In December, he told investors that automated warehouses eliminate a lot of time workers spend in the back room of stores sorting merchandise. Along with investments in advertising and fulfillment services, “that’s when you have a more attractive income statement,” he said.
So, less monotonous work and more pay, but lower overall costs — the unspoken tradeoff is often fewer workers.
Already the company is cutting jobs from its warehouses as it ramps up automation. It plans to cut 2,000 e-commerce fulfillment jobs in the US and continues to close underperforming stores, leading to additional employee layoffs.
It’s difficult to escape the reality that with more automation will come a further streamlined workforce — a process that will be on rinse and repeat with ever increasing technological sophistication. Technology can improve work productivity and relieve people of some backbreaking tasks like hauling heavy boxes around a fulfillment center. It also creates opportunities for workers to improve their skills and become technicians rather than manual laborers. With each innovation though, new tasks will be added to the robot roster.
This has serious implications for those people without a college education who have traditionally depended on retail or warehouse work to break into the workforce. Automation leaves less need for less educated workers, who may not have the advanced technical skills to operate robots. That could further increase the gap between rich and poor as workers without a college education find fewer job prospects.
Of course, Walmart isn’t alone in its sprint toward automation. Amazon.com Inc. has long used robots in its warehouses, which it credits for its supply chain success. However, more traditional brick-and-mortar stores are embracing automation. Nordstrom Inc. uses automation across its supply chain, which helped it increase its distribution center productivity and speed by 20%. Panera Bread Co. and Popeyes Louisiana Kitchen Inc. are both testing automated ordering in some drive-throughs where robots replace the employees who used to take customer orders.
Walmart’s big plans for automation simply reflect a broader transition across industry where workers work alongside robots. But workers who aren’t prepared for that future will lose out. What is Walmart’s responsibility here? The company is already ramping up its investment in preparing workers for a more technological future. In an ideal world, Walmart and its peers would do more. They could support programs outside of universities and colleges (or partner with them) to train workers in the kind of technologies that are becoming staples in the industry. For instance, Google created a fund to invest in non-profit programs that train workers without a college education in information technology support, data analytics and project management so they can move on to high-paying jobs.
If Walmart is going to be a leader in transforming the retail workplace, it also carries some responsibility for ensuring that, at the other end, workers can still thrive. Not just robots.
