Welcome to Three Minute Insights, where we discuss issues of importance to retail suppliers. Our guest this week is Terry Clear from Eighth & Walton, and we are discussing the news that Walmart has won patents for AI‑powered dynamic pricing systems.
Lainie: How should Walmart suppliers regard these new AI pricing patents in terms of markdowns, base prices, and margin talks with Walmart?
Terry: It’s going to change the game. First, the supplier needs to set their pricing based on velocity metrics, not necessarily profit metrics. The two patents are related to dot‑com items and store items, and the algorithms are going to adjust prices to meet velocity and inventory goals. If you come in with pricing that is too high and your product is not moving fast enough, Walmart will reduce the price to make the product move faster, but then the supplier will be liable for the markdowns. To avoid that, you need to come in with a better price from the beginning. Reduce that markdown liability.
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Lainie: And with digital shelf labels and in‑store rollout, what expectations do you see for how suppliers manage in‑stocks and promotions at Walmart?
Terry: Again, you should always strive for near‑perfect in‑stock. That doesn’t change. Now, with digital shelf labels, this will be a journey. At first, Walmart is simply going to implement digital shelf labels, but they will allow pricing to happen more dynamically and more granularly. There is not going to be a situation where they change prices during the day and put in scanners so that I get a different price when I am standing at the shelf than you get when you are standing at the shelf. But there is the opportunity to adjust prices more frequently across the network.
There is also, possibly in the future, the opportunity to adjust prices by different store groups or locations. One cluster of stores may have a higher or lower price on an item. There is also the possibility of adjusting prices by day of the week to try to capture or influence demand.
This is going to change a lot of what suppliers need to look at in terms of which stores Walmart has changed pricing on, either up or down. If they have reduced the price, then: How much is my markdown liability, and should I now come to Walmart with a different pricing structure?
Lainie: And we all know that Walmart is leaning a lot harder into AI and technology under its new leadership. What specific capabilities do suppliers need to build now so that they are not left behind?
Terry: This now gets into all of this additional data being much more granular and much more dynamic. Now I need to come to Walmart with price‑elasticity models to say, “Here’s how my product will move based on the other items in the category and what their prices are. As those prices shift, this is how my demand will shift.” I think Walmart is going to use this to influence the velocity of items through the store so that we do not have an item that is priced incorrectly and just sitting on the store shelf, not doing anything.
Walmart wants that product to move, so they are going to adjust the price to get the shopper to buy it, and you, the supplier, are probably going to be held accountable for that markdown difference and may need to reimburse Walmart for that.
