Bentonville to Silicon Valley: Walmart Thinks Like a Start-up

This Most Connected Company adds tech acquisitions to its expansion plans.

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Amazon, Cisco, eBay, Google, Microsoft, Oracle, and Symantec are among the high-tech icons synonymous with Silicon Valley. Here's another company vying to be on the list: Walmart.

In recent years, the retail giant that prides itself on its folksy Bentonville, Ark., roots has quietly transformed itself into a technology powerhouse to compete more fiercely with Amazon and other online rivals. Walmart, highlighted by U.S. News as one of America's Most Connected Companies for its e-commerce investments, is aggressively seeking to position itself for a future in which more shoppers interact with it via computers, tablets and mobile devices.

[See America's Most Connected Companies.]

The company's presence in Silicon Valley since 2000 significantly expanded last year with the debut of @WalmartLabs, an e-commerce research center that quickly grew from 70 staffers to more than 200. @WalmartLabs and the retailer's dot com division moved late last year to new offices in San Bruno, Calif.—directly across from the headquarters of Google's YouTube. In April, @WalmartLabs announced that its research center in Bangalore, India's Silicon Valley, is set for a major expansion. The center will relocate to a larger facility and hire 100 additional engineers and software developers.

It's a "bricks and clicks" strategy embraced at the top by Walmart President and CEO Mike Duke. "Customer expectations are moving really, really rapidly because they're adopting these new technologies," says Venky Harinarayan, senior vice president for Walmart Global e-Commerce and head of @WalmartLabs. "We have to be innovative, we've got to experiment, we've got to try things out," he says.

Walmart has long been a pioneer in the warehousing and analysis of customer data and use of so-called RFID technology that uses bar codes to track and manage inventory. Now, as its customer base flocks to smartphones and social media, and as it faces new competitive pressures, it aims to be an e-commerce leader.

It has introduced more products online, including thousands since January (particularly apparel, health and beauty items, and packaged foods), offers free shipping options, and regularly upgrades the search capabilities of its site. Wendy Liebmann, CEO of WSL Strategic Retail, a consulting firm, says the site is "easier to shop" and features more tools that allow for customization, such as personal shopping lists. "That all feels Amazonish," she says. Nevertheless, since Walmart caters to value shoppers, it can't match its competitor's breadth. "Where Amazon takes you is to the world," she says. "It gives me a lot more range."

Since many customers pay with cash, Walmart unveiled a program in April that allows shoppers to buy Walmart products online and pay cash within 48 hours at one of its stores.

Even though Web titans such as Amazon and eBay have established themselves as retail powerhouses, Harinarayan says Walmart has an opportunity to "leapfrog" them through innovation. To that end, @WalmartLabs launched Shoppy Cat, an app that analyzes the "likes" of your Facebook friends to craft gift recommendations for them. It's also hosting a competition called "Get On the Shelf," in which participants contend to have their products sold in Walmart stores. The winner will be selected by votes cast on social media.

Under an initiative called "Social Sense," the lab mines the vast constellation of tweets, Facebook messages, and YouTube videos—what the company calls the "social genome"—for clues about popular items to include in Walmart's product line. Several experiments are underway, including a test of a mobile app that displays store maps on smartphones and will eventually respond to verbal queries such as "Where are diapers?"

[See There's Retail Magic in Silicon Dust.]

"I think all of these things are going to help them," says Robin Sherk, a senior analyst at Kantar Retail who closely tracks the company, although she cautioned that it's too early to know if the latest steps are increasing sales. Walmart's e-commerce investments are designed for the long term, she says.