What Walmart Loses with the Closure of its Store No. 8 Incubator

In 2017, Walmart commissioned an incubation arm — Store No. 8 — to build new ventures and test new technologies that would help the retail giant drive future growth. 

Former Store No. 8 SVP Lori Flees said in a 2021 Bundl Article, “There’s so much innovation happening in (Walmart’s) supply chain, in-store operations and in eCommerce. Their focus is over the next one to two years, but we’re looking beyond that to three to five years out. If you don’t fund that kind of innovation early, you’re left behind.”

Store No. 8 was exploring concepts like: 

• Conversational commerce
• XR
• Frictionless checkout
• Perpetual inventory
• Shopping automation  
• Sustainability
• Health and wellness

The innovation group was an offshoot of Walmart’s $3.3 billion acquisition of the e-commerce startup Jet.com. Its corporate “sugar daddy” was Jet.com founder Marc Lore, and he helped bring in other entrepreneurs like Rent the Runway co-founder Jenny Fleiss and former Rethink Robotics CEO Scott Eckert.

The retail giant’s goal was to acquire startups and incubate new ideas that would give it the ability to stay ahead of the curve. Since the launch of Store No. 8, they have found numerous partnerships and have tested many concepts as it was designed to do. As the Wall Street Journal reported in mid-January, Walmart will be shutting down Store No. 8.

The question we are all left with is, “Why would they do that?” 

Innovation is ‘Fully Embedded’ Now

An internal memo from Walmart CFO John Rainey was leaked to the media, stating that innovation has been “fully embedded” in its organization and Store No. 8 is no longer needed. So, do you buy this argument? After starting an innovation team in the retail world for a national food brand, I sure don’t. 

Walmart employs over two million people worldwide, and over 15,000 people in its corporate headquarters in Arkansas. Since the opening of Store No. 8, about 300 people have moved from the incubator team into other parts of the organization. If Walmart is banking on the work of these 300 employees fully embedding innovation into the organization, they have a big problem. That means that only two percent of your corporate employees have that culture to bring back to the office in other departments. And that’s if they all stick around. 

Fact of the matter is, most of the tech forward leaders aren’t sticking around for the ride. Kate Finnegan, who was the driving force behind Walmart’s tech and innovation strategies, left in 2019. Jenny Fleiss, Co-Founder of Rent The Runway, who played an integral role in advancing conversational commerce, left in 2020. Lore departed in 2021. So, innovation is probably not being “fully embedded” as the CFO suggests. And it’s clear that many outside entrepreneurs did not find ways to work effectively within Walmart’s culture.  

Playing devil’s advocate, Walmart might have enough learnings to move into the next phase of the future with concepts like conversational commerce and frictionless checkout and decided that they have invested enough especially, since the work is not generating substantial revenue for Walmart. Or could it be that Walmart is finding it too hard to recruit and retain the right talent that is needed to shatter glass ceilings? Either way, Store No. 8 was sucking up resources, and not generating enough new revenue — a CFO’s worst nightmare.

Walmart is going back to its original value proposition — everyday low prices and a good selection — and making the assumption that customer behavior will not change dramatically from here on out.

Walmart is going back to its original value proposition — everyday low prices and a good selection — and making the assumption that customer behavior will not change dramatically from here on out. (A Walmart Global Tech team, with offices around the world, seems to be taking up the baton of exploring new technologies and building new features and products. It’s under Chief Technology Officer Suresh Kumar.) They may feel as if they have enough learnings, and can now handle innovation within their current business units. This is a big mistake for two reasons. 

First, far-out thinking was taken out of the hands of the everyday business units for a reason. Marketing, IT, and Sales departments are measured on the impact they have on the business today. They must focus on the day-to-day to deliver results to the next quarterly earnings report. Tomorrow is easily forgotten about, no matter how hard we try to plan for the distant future.

Second, former Store No. 8 team SVP Lori Flees said it herself, “If you don’t fund that kind of innovation early, you’re left behind.” I believe this is the trajectory of Walmart. There might be some close-in wins from Store No. 8 that can be applied in the next year or so. But they have taken their eye off of the ball and will miss what is coming after that. Tracking utility patents, new innovations and technology has grown exponentially at unprecedented rates. Every day we are seeing advancements, and to suggest that we have hit a plateau is bewildering.    

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What You Can Expect to See Now

If I had a crystal ball and was predicting the three biggest challenges in Walmart’s near future from this decision, they would be: 

1. Disjointed Innovation Efforts 

Business units in organizations tend to take ideas and run with them without thinking about who they should involve. Sometimes, this harbors from not wanting to water down their idea. Other times, it’s to avoid judgment and the chance of killing the idea before they have a chance to fully realize it. But at the end of the day, this happens on most teams, compounding into multiple teams working on the same concept in their own silos. 

In an organization that I was working with, we wanted to create an evolution of the service experience. Unbeknownst to leadership, many teams began to tackle this problem independently. Each team created a new process based on what they believed to be important to customers. When the business units began to sell-in their service experience, it became confusing as to what would work best and which of the contradicting insights we should believe. 

2. Inconsistent Testing

As innovation concepts leave headquarters and make it to stores around the country testing will vary from each store, making it hard to know if the innovation is truly successful. Many variables play a role in tests. First, you have the store model that can vary in size and plan-o-gram. Then, you have a different consumer in each store which can vary in each region and even in the same city. And if that was enough, you also have to consider store employees’ interpretation of the test. Will they follow the exact directions as stated so the test remains consistent in a multiple-store test?

An incubator arm, like Store No 8, can ensure consistency from test to test to see which concepts might have more legs. It also allows the corporate team to build a tight concept brief to share with the organization for the next round of testing. When I test in retail stores there are endless variables and it always helped me to start in a controlled environment first. It allowed me to understand if a concept felt right and if I should support it beyond the first failed test in market.

3. Short-sided Strategic Overlay

Each year, an executive team will share their priorities and why those are the company’s focus. This creates a strategic outline of what the business units should focus on as a company. Anything that lays outside of the strategy is a waste of time and reduces the effectiveness of the strategy. To gain the best results on the strategy, we need to all focus on the strategy. 

But what about big ideas that might not fit the current strategy? They usually get tossed to the wayside until the competition launches it—and now you’re playing catch up. A strategy is essential to any good business. However, it can be short-sided if we don’t leave room for innovation and future thinking.  

Takeaways: Who is Championing the Innovation Process?

So, is Walmart doomed for failure and a meek existence in fifteen years? No, they will be fine. But they are leaving room for new competition to sneak in and giving companies like Amazon a chance to further the distance in the race for the supreme retailer. I think Walmart will see the mistake they made by closing down Store No. 8, and I think they will adjust their approach.

Put a team in place that can mindfully be the champion for the innovation process. A team that can connect all of the dots.

If I were to give Walmart and you one piece of advice, it is always to have a designation for innovation within your organization — a group that can look broadly at trends and technologies, and find new business opportunities. It might not be a fancy lab or a team with a multi-million dollar budget. But at the least, put a team in place that can mindfully be the champion for the innovation process. A team that can connect all of the dots. A team… 

• That knows the biggest challenges of key stakeholders and their priorities. 
• That knows key consumer and business insights that drive into the company’s future.
• That holds the key principles of the innovation process.  
• That can move fast and operate outside of the bureaucracy when it needs to.
• That can connect each of the business units into one cohesive innovation front.

This team can make a difference in envisioning the future, and preparing for it, so that you are not left behind. 

Matt Mueller is an innovation professional with over 15 years of experience, and author of the book The Mindful Innovator. He is a former Innovation Strategist for Boar’s Head Brand. InnoLead welcomes contributed pieces from current corporate professionals; our guidelines are here.

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