The rise of digital has been a bit like Godzilla doing indiscriminate damage simply by moving forward. Even when the monster means no harm, harm inevitably happens simply due to the size of the disturbance.
When the internet first rose to prominence it wasn't obvious that the music industry would be devastated then reborn in digital form. The same is true of the news business. Few, if any, newspaper publishers saw that people would get their information from social media and not print publications or even in many cases their digital counterparts.
What has been clear in both of those industries is that merely trying to catch up does not work. Chain record stores died because they tried to evolve rather than radically adapt to a world where access to nearly every song ever costs $9.99 a month. In newspapers, the old-school publishers who are succeeding are the ones who accept that how people consume news has changed while the ones still pouring resources into a once-a-day-publishing schedule are dead or dying.
The same sort of shakeout is happening in retail. Chains that are simply trying to tweak a once-successful formula are heading toward oblivion while Wal-Mart (NYSE:WMT), which has fully embraced a radically different future, has begun to thrive.
What is Wal-Mart doing?
Wal-Mart has embraced the idea that it does not matter where a customer makes a purchase as long as it captures the sale. That may seem obvious, but most retailers still view digital sales as secondary while they fight to preserve their brick-and-mortar business. Wal-Mart has instead accepted that its stores are simply part of the fulfillment chain -- an asset to be sure, but also a tool.
"We think the future is a combination of digital and physical retail," said CEO Doug McMillon during the chain's October call with analysts and investors. "Customers are shopping in-store, online, with apps and mobile, a little with their voice and in time, with AR and VR and whatever comes after that. And they'll do so seamlessly."
Basically, McMillon acknowledged that it's his company's job to facilitate shopping in whatever way customers want. That's a hard admission for someone who helped build a retail empire based on brick-and-mortar stores. It's also not a strategy or thought process the company came up with on its own. Instead, it used data and then actually followed what it learned from the numbers.
U.S. customers that shop us in-store and online spend nearly twice as much, almost two times, as customers that only shop with us in stores. And when customers that only shop in our stores become walmart.com customers, they spend more in stores. Their loyalty to Walmart strengthens overall. And for customers that shop in-store only and begin to use Online Grocery, they spend more with us in total after becoming an Online Grocery customer. It's a sweet spot for us, but it's also a sweet spot for our customers.
Give customers what they want and they will be happy, causing them to spend more. That's a major change in thought process from a retailer that used to win market share by ubiquity and pricing. Wal-Mart, of course, still has both of those, but neither has the relevance it once did in a world where Amazon (NASDAQ:AMZN) is always a click or two away.
Prepare for the future
The rise of digital has created choice for consumers. For example, you can wait until the last minute to buy an item you need and pay more for rush delivery. You can also pay a little less if you can wait a couple of days or pay even less if you buy in larger quantities on a recurring, subscription basis. Wal-Mart has elected to embrace giving customers choice.
"In the future, we think we will be able to keep some of our customers' homes in-stock the way that we keep stores in-stock today," McMillon said. "Customers can choose any of these service levels and pay for the speed they desire."
The CEO acknowledged that customers "want options all the time." He also made it clear that Wal-Mart does not have to perfectly predict what the mix will be in the future.
"Instead, we have to build the capabilities to provide the service they want more efficiently than others," he said.
It's about flexibility
Shedding rigidity of thinking generally does not come easy. If something worked for you once, it's logical to want to return to it again. Wal-Mart, however, has embraced the idea that the old reality won't be coming back. Offering convenient, well-priced stores remains part of the puzzle, but it's no longer the whole of it, or maybe even the most important piece.
The company has embraced a flexible future driven by customer demand. Wal-Mart isn't trying to recapture a past that won't be coming back nor is it trying to find a formula to keep its stores at the forefront. Instead, it's fully supporting a world where choices give consumers power and where people shop may come down to which chain serves them the best in the most ways possible.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.