Walmart Wants A Piece Of Amazon's Blockbuster Advertising Growth

Walmart (NYSE:WMT) has been aggressively growing its e-commerce business in recent years. Borrowing from Amazon's (NASDAQ:AMZN) playbook, the company has begun offering free two-day shipping with a $35 order minimum, vastly expanded its online inventory, homed in on its marketplace opportunity, and acquired a number of native e-commerce brands like Jet.com, Bonobos, and ModCloth. Walmart has also leveraged its own store footprint to support its fast-growing grocery pickup and delivery business, as well as other initiatives like its new pickup towers, which give customers an easy way to retrieve online orders in stores.

Those moves have helped Walmart become one of the country's biggest online retailers. The company's U.S. e-commerce sales jumped 40% in 2018, following a 44% increase in 2017.

Now, having spied Amazon's sudden growth in advertising, Walmart is stepping up its own efforts in digital ads. Amazon does not directly break out advertising revenue, but its "other" category, which is made up primarily of ad revenue, more than doubled last year to $10.1 billion. Amazon is now the third-largest online advertising platform in the U.S., behind Alphabet's Google and Facebook. And as those two companies' financial results demonstrate, online advertising is a high-margin business.

So, it's not a surprise to see Amazon -- and now Walmart -- seek to leverage retail supremacy into a new ad-revenue stream.

Walmart's plan

At Walmart's annual investor meeting last October, according to The Wall Street Journal, CEO Doug McMillon said: "Our data has never been monetized and we have a tiny ad business. It could be bigger." Now the company is looking to make good on that intention. At a meeting Tuesday with its suppliers, Walmart presented a revamped ad strategy to key vendors like Procter & Gamble, Mondelez, and Unilever.

The retail giant is ending its relationship with the ad agency Triad and is bringing its digital ad business in-house. Walmart is also seeking greater cross-pollination with its digital and store-based ad teams. It wants to gain leverage from the power of its stores and the large amount of shopper data it's compiled, and to use that to drive online revenue.

Walmart's store network also gives it a unique advantage over online retailers and pure-play advertising platforms like Google and Facebook. The company believes suppliers will pay for ads that could help sell complementary products for items already purchased at a Walmart store. Dave Bratspies, chief merchandising officer for Walmart U.S., told The Wall Street Journal that he wants to hear statements like: "I'm the CMO of a large branded manufacturer [and] I now think about Walmart as a network I can go advertise on."

Keen on keeping pace with Amazon, CEO McMillon sees advertising as a big opportunity, one that can deliver profits to make up for added expenses as his company invests in aggressive e-commerce growth. The advertising opportunity at Walmart has also been largely overlooked in recent years. But with its online sales having doubled in the last two years, the company now has a much larger market to fund its efforts as it seeks to challenge Amazon.

Will the move deliver results?

Walmart's online sales are still much smaller than Amazon's, and it's unclear how Walmart plans to leverage its store-based data -- it doesn't have a loyalty program or a convenient way to track individual shoppers. Walmart has also historically been less nimble than Amazon in moving into new markets and segments. It doesn't have the same tech pedigree or culture that distinguishes Amazon, whose founder, Jeff Bezos, advocates a "day one" philosophy for business.

Still, it makes sense for Walmart to more aggressively pursue ad sales: It controls nearly 10% of non-automotive retail sales in the U.S., making it a highly sought-after partner for consumer packaged goods companies like P&G and Kraft Heinz. In turn, its tens of millions of shoppers also make it a desirable network for advertisers interested in reaching more consumers.

I wouldn't expect this initiative to move the needle on Walmart's financial results anytime soon; the company must first build up a skilled ad team. But the strategy represents a step in the right direction, especially as advertising is such a high-margin business.

This article originally appeared in the Motley Fool.

Jeremy Bowman owns shares of Amazon and Facebook. The Motley Fool owns shares of and recommends GOOGL, GOOG, Amazon, and FB. The Motley Fool is short shares of PG. The Motley Fool has a disclosure policy.