How Walmart’s incubation arm creates the future of retail

Created after the acquisition of Jet.com, Walmart’s Store No. 8 is the retailer’s incubation arm, developed under the purview of Walmart.com CEO Marc Lore, who founded Jet.com. He wanted to think about how Walmart develops experimental new businesses and technologies, but “it had to be more than a project,” said Katie Finnegan, principal and founder at Store No. 8 (above).

Finnegan, who spoke at the NRFtech conference about incubation as an approach to innovation, provided a glimpse into how America’s largest retailer intends to not only stay on top, but shape the future of retail.

The first step was creating a separate wholly owned entity. “It allowed us to create an infrastructure and a process to, as Sam Walton liked to say, ‘buck the system,’” she said, “do things very differently than we had done them before.”

Even the name harkens back to Walton’s legacy; the original eighth store, Finnegan said, was an old Coca-Cola bottling factory that Walton used for his “seemingly, at the time, crazy experiments.” Today, it’s still a place for tinkering — but these days, it’s tinkering with the future of retail. The challenge is finding the right experiments.

“There’s no lack of ideas,” Finnegan said. Store No. 8 just needs to decide which ideas to bet on, “and how big that bet should be.”

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Store No. 8 calls its process for finding the right ideas “the point of view on the future of retail.” The team analyzes and studies key elements that influence the retail landscape: macro consumer trends that could impact future consumer behavior; emerging technology trends with the potential to transform the retail landscape; and competitive dynamics — ongoing research to identify key trends the market may influence — and how they could impact customer expectations.

These factors come together to provide an understanding of key shifts in customer expectations, future changes in product mix and supply chain — ultimately, a summary of top challenges and opportunities in retail, and suggested timelines for impact.

“We take a stance on where we think consumer expectations will be and how that fits into our strategy as Walmart,” Finnegan said. Store No. 8’s incubation process involves five steps: design, initiate, build, iteration, evaluation.

It starts with design: What problem are they solving? What’s the timeline look like? How much will it cost? This stage is all about research, learning the market, planning the business, developing a proof of concept, pitching the idea and gaining shareholder buy-in.

That’s followed by initiate: Sourcing and hiring the CEO and founders, developing a budget, building a board of directors. This is when the crux of a company is developed, and it transitions to a separate entity with offices outside the corporate office. The CEO is empowered to run the company — Walmart takes care of the heavy lifting around things like human resources and payroll. “Where are the places where the broader corporate entity can help the entrepreneur?” Finnegan said. “We want to free up CEOs to punch above their class.”

The build stage follows — hiring a team of smart people, building product and developing the brand identity. Then comes iteration: a beta launch with a goal of creating a path to profitability and long-term scale; it’s a time to refine the product, define a formal launch plan and develop customer, performance and financial KPIs. Once the product is launched at scale, the final evaluation can take place: Assessing the potential impact and deciding whether to integrate the concept into the larger business.

As Store No. 8 is less than two years old, none of its concepts have reached the decision point yet: Finnegan said Jetblack, a members-only personal shopping and concierge service that debuted recently, is in the iteration stage now, with a small number of customers using it online. “For us, success is creating capabilities that will serve our 160 million American customers every week, not necessarily creating startups we can spin out for a huge valuation,” she said.

“It’s really about operational and strategic returns, finding a process to allow those nascent ideas and technologies to really develop and grow at the right pace at the right time and in the right way, so when they do become part of the broader entity, they’re set up for success.”

For more stories and session recaps from NRFtech, visit the official recap page. Watch the vedio below for a sneak peak.

NRFtech 2018 Recap

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