Editor’s Note: As 2023 comes to an end, we are highlighting some of our most-read content of the year. We look forward to continuing to deliver original, thought-provoking stories like this one to our readers in 2024.
Named after Walmart’s eighth store, in Morrilton, Ark., Store No. 8 is Walmart’s incubation arm and a key part of the retailer’s broader innovation strategy. Founder Sam Walton used the Martin store to test new concepts and ideations that have since become key differentiators for the retailer.
Store No. 8 acts as a strategic vehicle to think about “larger bets” that will be “transformational for Walmart in the medium- to long-term,” according to Jaya Balasubramaniam, VP of Incubation, Strategy and Operations for Store No. 8.
“Innovation happens in all areas of Walmart, but a lot of the business-unit specific innovation tends to focus on the short- to medium-term,” Balasubramaniam said during a session at the Retail Innovation Conference & Expo in June. “Our explicit mandate is to [dig into] uncertainty in nascent technologies, uncertain adaptations into retail, but also uncertain business models. If we’re not exactly sure how to go to market on something, or if the adoption path of something is a little more uncertain, that falls into our purview.”
Since its formation in 2017, Store No. 8 has established a process in which it develops a self-contained portfolio of companies that can test and learn quickly, pivot as needed and stay ahead of the market. The companies work alongside, but outside of, Walmart’s core business until a company has proven its readiness to scale. For Store No. 8, the process includes:
- Determining where to invest;
- Going through a rapid venture design process; and
- Integrating new ventures into the Walmart business.
“Typically, our startups spend two to three years or so within Store No. 8,” Balasubramaniam explained. “Success for us means graduating those capabilities into Walmart.”
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How Store No. 8 Categorizes Possible Projects
Store No. 8 initially starts the process with a “broad and wide aperture,” categorizing opportunities within two core areas:
- New Business Propositions: These portfolio companies drive new revenue and profit streams using Walmart assets. If it’s a good fit for Store No. 8, it means it would be a substantial leap from the core business.
An example of this would be Walmart+ InHome, which allows consumers to place online orders and have Walmart employees deliver their orders, for free, through their garage or front door. The offering was incubated through Store No. 8 because the team wanted to assess whether consumers would be open to giving strangers access to their homes and unpack groceries in their own personal refrigerators.
“Mom said never to get into a stranger’s car, but now we all get into Ubers every day,” Balasubramaniam said. “The big question was whether consumers would adopt this in a similar fashion. With the help of technology, associates wear body cameras and consumers can track when the associate comes in and delivers products to the fridge. But it’s also the trust of the Walmart brand associated with that.”
Store No. 8 was able to demonstrate product-market fit and that uncertainty around adoption allowed us to fine-tune the value proposition and now it’s available in 1,000 stores across 50 markets, with an addressable market of 30 million households, Balasubramaniam shared. - Broad Technologies: These portfolio companies use new tech to improve customer experience or drive operational improvements for the existing business. Store No. 8 will prioritize opportunities that are higher risk and higher impact: extended reality and computer vision are two technologies that Store No. 8 has explored to support future experience innovation.
Looking ‘Outside In’ and ‘Inside Out’ to Validate New Projects
After Store No. 8 identifies key “domains of interest,” the team looks “outside in” and “inside out” to narrow down a list of priority projects.
The “outside in” phase is largely driven by VC investment activities. Balasubramaniam noted that looking at where the “smart VC money” is going is a powerful indicator, but the team also looks at the competitive landscape as well at Walmart’s suppliers, which often have incubators themselves and present possible collaboration opportunities. Finally, Store No. 8 taps into partnerships with a select number of universities, like MIT, that have open innovation platform.
Then, Store No. 8 looks “inside out,” which means considering domains of interest through the lens of the Walmart business and its customers to validate decisions.
“We have 2.2 million associates and that is our biggest asset,” Balasubramaniam said. “We can’t talk to all of them, but we are systematically taking the pulse of the leadership that spans that organization. They have an incredible front row seat into what customers are looking for all over the world.”
All these data points come together to form an evergreen pipeline of concepts, which are then presented to a board. The board approves which concepts ultimately enter the two- to three-year incubation process.
Harnessing the Power of Walmart’s Infrastructure
The startups operate as standalone entities within the Store No. 8 portfolio, which allows them to be more agile and respond more quickly to market feedback. However, being a part of Walmart means startups can leverage processes and resources that allow their leaders to focus on strategic work that drives product development.
“Oftentimes, startup founding teams spend the bulk of their energy in fundraising and setting up the entity itself,” Balasubramaniam explained. “We can help decrease a lot of that initial energy required and have the startup teams themselves focus on achieving product market fit and that path to scale.”
Once the Store No. 8 board approves a project, the team will do an early incubation process that includes building prototypes, going through early market validation and anything else required for early hypothesis testing. “Once we’re ready to form the actual venture, we will bring in opportunity-specific and domain-specific leadership, product teams and engineering teams to then focus on this core problem of building the product, achieving product market fit and demonstrating a path to scale,” she explained.
Being supported by an organization as large as Walmart also means that startups can take advantage of an already established infrastructure. “A startup within Store No. 8 has the incredible advantages of being within Walmart; for example, we have a ready-made mission and we want to stay core to that mission of save money and live better, so we make sure our startups are aligned and tethered to that core mission,” Balasubramaniam said. “We obviously have access to incredible customers, we have customers that walk into our stores or our omni channels on a weekly basis, which again our startups have access to as well. We have our incredible supplier community that we co-innovate with, as well as a supply chain capability and delivery capability that we can lean in on. Most of all, I think we have our brand, and with that brand comes a huge amount of trust which a smaller startup brand may not have on its own.”
Key Lessons Learned
Because Store No. 8 operates outside of Walmart, it is able to learn and pivot quickly — and the team has uncovered some lessons over the years. Balasubramaniam shared that the most successful projects:
- Start with the customer: They are built around customer needs and pain points, often presenting new ways of doing things.
- Align with the brand’s mission and values: Store No. 8’s most successful projects are core to the Walmart brand and capitalize on the retailer’s advantages and differentiators.
- Include the right people from the beginning: Because Store No. 8 is a strategic incubator, the team makes sure that team members from the core Walmart organization who will inherit these startup businesses are involved with their development from the beginning, even when they’re still simply “napkin sketches.” Should a startup “graduate” to Walmart, it then becomes a more natural progression for all parties, according to Balasubramaniam.
