Douglas Montgomery | Aluma Senior Analyst | March 7, 2023
Ask Not What Walmart Can Do For You, But What You Can Do For Walmart
The media world was rocked by news Walmart would acquire smart TV OEM Vizio, who seeks to better compete with Amazon in the growing retail media business (RMB) space. Importantly, Walmart gains a mainstream physical platform to extend the reach of its retail business and better compete in an omni-channel world.
The point of this is to improve Walmart’s growing demand-side group, Walmart Connect, the company’s platform through which advertisers can reach Walmart’s 150 million weekly customers via online in-store, radio, and sponsored media. The goal is to carve out a larger slice of the RMB business, of which Amazon has an estimated 75% share, tenfold that of Walmart. The company projects Walmart Connect will capture $6 billion in sales by 2025, roughly 1% of 2023 retail sales.
To understand Walmart’s current efforts in RMB, it is important to understand its past.
Billion Dollar Baby
The peak of DVD sales in the US reached $16.3 billion in 2005. Walmart’s Dept 5 (the department over physical media) garnered just under $5 billion in consumer spend in DVD sales. New release titles such as Harry Potter and the Prisoner of Azkaban and Star Wars: Episode III would routinely approach $100 million in consumer spend during the first day of sales, which was an important traffic driver to grow total basket sales. While not its sole traffic motivator, it was a very high-profile strategy at the time, and Amazon took notice. Prime Video was originally designed to bring customers to Amazon’s retail store. “When we win a golden globe we sell more shoes,” as Jeff Bezos famously said.
Under Siege
Walmart first dipped its toe into streaming video in 2010 with the acquisition of HD-streaming service, Vudu. The purchase made sense for a number of reasons, including the nascent threat of iTunes and Netflix, and to a lesser extent Amazon.
During the next decade, Vudu struggled to find its place in Walmart’s value chain. Was it meant to compete with iTunes directly and keep transaction digital sales in the Walmart family? Would Vudu be effective as the main place for a digital locker, where a Walmart customer could store a digital copy of a disc in the cloud? Would Vudu drive traffic to Walmart.com by combining homepages? Would Vudu be able to compete with Netflix by creating original content? (Hello, Mr. Mom.)
Vudu languished for a decade within Walmart and was eventually sold off to Comcast in 2020 and in 2024 renamed “Fandango Now.”
Up In the Air
To better compete with Amazon, in 2016 Walmart purchased “Jet.com,” a New Jersey-based e-tailer, for $3.3 billion. Jet.com was considered a forward-thinking e-commerce company, and adding it to Walmart’s arsenal would help accelerate that flank of the company’s business. It would also help Walmart better target younger city dwellers in urban areas such as Chicago, where Walmart faced considerable opposition to expansion of its big box stores. During the next four years, Walmart also purchased pure-play e-commerce sites including ModCloth, Jetblack, and Bonobons, all of which have since been sold, axed, or folded into the larger Walmart business.
While Jet.com’s sales tumbled by 45% in 2019, Walmart.com’s increased 74%. No surprise, Jet.com was shuttered in first-quarter 2020 “due to the continued strength of the Walmart.com brand we will discontinue Jet.com”. Lesson: Unless you provide for the mother ship, you are at peril.
Saving Private Brands
Walmart’s first foray into branded televisions was “iLO,” which was positioned in the perilous slot of “better than better.” (Walmart’s typical branding strategy is to distinguish products between “good, better, best.”) ILO was marketed as “Sony-quality” but at a cheaper price, much as Best Buy did with its house-brand, Insignia. Unfortunately, iLO was also unsuccessful and quietly dropped a few years later.
Another botched hardware effort was Vudu’s Roku killer, branded “Spark.” The device was seeded with $20 worth of “free” movies, which was intended to pay for the device, as well as get consumers interacting with Walmart’s eco-system. Displayed on the same store shelf as the Roku stick, the Spark was more of a douse and quickly dropped.
The Good & Bad of Acquiring Vizio
A Rounding Error
In 2023, Vizio reported revenue of $1.7 billion, roughly 0.3% of Walmart’s US retail sales. Despite this fact, the company believes Vizio will aid in the retailer’s push into advertising and otherwise bring added value to its nascent retail media business. Linking advertisements to customer purchases—or better yet, to customer intentions, long the goal of addressable advertising—will be easier said than done. That said, it is a worthwhile ambition.
Primary Colors
Vizio has roughly 18 million customer accounts, roughly 12% the number of visitors Walmart gets to its brick-and-mortar stores each week. As well, Walmart has 32 million users signed up on Facebook alone. These are big numbers, thus Vizio will need to earn its place and expand upon its existing user base quickly, which is possible given how many TVs Walmart sells in a given year. The challenge is to clearly define what it is that Vizio brings to the table for a company the size of Walmart. Understanding the merchants (merchandising drives the ship, not the marketing), and receiving advice from major suppliers such as P&G and Coke—as well as ad partners—will go a long way in making this a successful acquisition.
Walmart is not new to the retail media business, but has to date been unable to capitalize on its prominence. Vizio offers it a new entry point, as well as an established user base and popular branding. With some creative pricing and market messaging, we believe Walmart has a much better chance to bite off a significant slice of TV-based retail sales.
Those at Vizio, or any other company that Walmart acquires, best heed the (paraphrased) words of John F. Kennedy. It’s not about what Walmart can do for you, but about what you can do for Walmart.