Wal-Mart is seeking higher profits powered by warehouse bots and automated claws

Brooksville, Florida. – At first glance, this warehouse looks like many: forklifts unload pallets from the back of dozens of tractors. Canned soup, soda, and cleaning supplies teeter on conveyor belts. Store-bound merchandise is sorted by department and store aisle before being stacked high like a complex game of Tetris.

the difference? Quests are run by giant robotic tentacles and rolling robots, rather than people. The driver’s seat of the forklift is empty.

Welcome to the future Walmart.

The big-box retailer showed off at an investor event last week how it plans to use automation to quickly and cost-effectively manage inventory and shelf inventory and keep up with online orders. The company took investors on a tour of its approximately 1.4 million square foot facility in Brooksville, Florida — the first automated distribution center for packaged foods and other shelf-stable household items.

Walmart plans to add the same automation from symbiotic — the warehouse technology company in which Wal-Mart acquired a majority stake last year — to all 42 regional distribution centers, though it did not share a timetable for doing so. The company said that by the end of January, nearly a third of stores will get distribution from automated facilities.

Walmart’s automation is part of a broader plan to generate higher profits. In coming years, CEO Doug McMillon said, the retailer’s revenue will grow about 4% year-over-year — slower than the roughly 8% growth seen in the past three Covid-fueled years, but still faster than the 3.1% growth. % and 3.6% the retailer posted in the three years prior to the pandemic.

McMillon added that he expects profits to grow faster than sales over the next five years as Wal-Mart adds automation and grows its higher-margin businesses such as advertising, delivery services and last-mile delivery.

He said Wal-Mart has given customers more ways to shop online and get to purchases faster. It offers more general merchandise, including exclusive brands in categories such as apparel. And it has more sellers joining the third party market as well.

“We are now at a point where we are not expanding our in-store pickup and delivery and e-commerce line-up and FC e-commerce [fulfillment center] square feet and more on execution and operating margin improvement.”

Within three years, Walmart expects about two-thirds of its stores to be serviced with some type of automation, about 55% of fulfillment center volume will move through automated facilities and unit cost averages could improve by about 20%.

For Walmart, the nation’s largest employer, pushing automation means shedding some of its 1.6 million roles.

At the Brooksville facility during the investors’ tour, it appeared that only a few people were on the distribution center floor, though Walmart said the total number of heads at the facility had not changed.

David Gugina, executive vice president of supply chain operations at Walmart US, said automation is about increasing capacity, not reducing jobs. Retention is greatly improved, he said, because the work is not physically demanding. He declined to share specific turnover numbers, but said in the first year after the Brooksville facility became automated, no employee left the job.

In an interview with CNBC, McMillon said he expects the retailer’s workforce to remain about the same size. But he said its composition would change. For example, he said, Walmart may need fewer people to unload pallets in warehouses, but more people to deliver online orders to customers’ doors.

Walmart recently laid off hundreds of workers at its e-commerce facilities across the country. Those layoffs, McMillon said, followed an increase in online sales during the early years of the pandemic, as the company tried to understand what its sales trends would look like post-holidays.

Walmart has not shared how much it will spend on automation projects. At last week’s investor event, Chief Financial Officer John David Rainey said the company expects its capital expenditures to be slightly higher than a year ago, at 2.5% to 3% of sales.

He said about 90% of the company’s capital will be in “high-return areas” such as e-commerce, supply chain and store investments.

As Walmart plans a larger rollout, some employees have already made a change to their routines. Jose Molina, who shares his experience as part of the organized tour, started working at the Brooksville Distribution Center in 1995. For years, he said, he kept track of inventory using a pen and paper. He is tired of lifting heavy boxes with pallet jack or operating forklift.

Using automation, Molina monitors the robots as they unload the truck and intervenes if they run into trouble, he said. Scanners keep a count of each item, so he can skip pen and paper or mental math. He leaves work not feeling overwhelmed and coaches high school football at the end of his day.

“I even kick the ball sometimes,” he said.

Brad Thomas, retail analyst with KeyBanc Capital Markets, toured the Tampa-area facility during the investor event. He said he was sold on the investments after seeing real results in the back of a nearby store.

Thomas pointed to two trailers packed with pallets and ready to be unloaded from the distribution centre. One was hand-packed by staff and included a collection of items from several departments piled into a haphazard pile. A box of Pop-Tarts precariously supports other items at the bottom of a towering pallet.

The other trailer was filled by robot, organized with the help of automation for quick and easy unloading for workers. Like the elements together, the heaviest are on the bottom.

Thomas said the discrepancy helps highlight what he sees as an important shift for Walmart — “the most exciting setup the company has made in the past 10 years.”

“Ten years ago, Wal-Mart was still playing catch-up in areas like e-commerce, and I think many of the investments they’ve made are paying off,” he said. “We’re actually seeing areas like automation where Wal-Mart is arguably more of a leader than a follower.”

Other retailers are pushing into automation, too. Giant grocery Kruger Huge robot-powered sheds are opening with British company Ocado to expand its online grocery business, including one that has allowed it to enter the Florida market without building a single store.

Amazon It has increasingly automated the picking and sorting of parcels in its warehouse. Its $775 million acquisition of Kiva Systems in 2012 was a pivotal moment in that transition, as it gave Amazon access to robots that can move shelves of goods from worker to worker, speeding up the fulfillment process.

Walmart is working on automation to help get more online orders to customers with next-day or two-day shipping. The retailer currently picks, packs, and ships orders at 31 fulfillment centers across the country, and has plans to build four automated fulfillment centers, including one that’s already opened in Joliet, Illinois, 45 miles southeast of Chicago.

The retailer has 46 additional distribution centers to support the new side of its grocery business and an automated grocery distribution center in Shafter, California. It has plans to open another in Lancaster, Texas, later this year and one in Spartanburg, South Carolina, next year.

It’s also testing small fulfillment centers in the back of stores where employees work alongside automation to process online grocery orders.

— CNBC’s Annie Palmer contributed to this report.