How Walmart is going all in on artificial intelligence

As the digital era continues to turn retail on its head, Walmart’s story is particularly interesting, as the brand is somehow both the challenger and the incumbent. Walmart has been the world’s largest retailer since 1988, but as Sears proved, prominence isn’t permanent. The retailer had a series of disappointing quarters, seemingly on track to become Amazon’s biggest casualty.

Walmart got complacent. Galagher Jeff, the company’s VP of Merchandising Operations and Business Analytics, even said so when he spoke at NRF 2019: Retail’s Big Show in New York City earlier this week.

“We had a business that was successful and we stopped taking risks,” admits Jeff. “We didn’t know how to manage the complexity so we focused on what we know, which is good operations. Now, we have a chance to really reimagine our business and what it can be.”

Sales in the U.S. are at a nine-year high. One thing Jeff’s presentation made abundantly clear is that the company plans to keep those numbers up with artificial intelligence.

Personalization

Say sales were abnormally low at one store because a supplier shipped items late. In the past, that anomaly would take several days to identify. An internal analytics platform called the Flight Deck can figure out in minutes.

“In retail, we’re good at looking backwards. We can tell you the sales from yesterday or the last hour, but we’re not good at telling what’s coming,” says Jeff. “The Flight Deck tells us what happens, what drove those business results and what you should do about it.”

Last spring, Walmart redesigned its website to be more personalized. Shoppers are served product recommendations based on their previous behaviors, an important distinction. According to Accenture, 58% of consumers are more likely to buy from a retailer that does so. Plus, if a brand doesn’t make relevant recommendations, SmarterHQ found that 47% of people will go to Amazon — Walmart’s chief rival.

Those recommendations also consider the customer’s location, something Walmart brings to its physical stores as well. Personalizing a store’s inventory, albeit in a broad sense, sounds like an impossible task when you consider who Walmart’s core customer is: Absolutely everyone. Ninety percent of the U.S. population lives within 10 miles of a store. The Flight Deck makes it possible.

“We’ll always have tons of merchandise online, everything you could possibly need, but our stores have space constraints,” explains Jeff. “Machine learning makes sure we have the right assortment. We have to know that what’s in this four-foot space is right for Detroit, Kansas, Mississippi, New York — 4,700 times.”

Disrupting delivery with self-driving cars

Given its massive reach, Walmart is obviously a big player in the grocery space, which happens to be Amazon’s fastest-growing category. The brand is figuring out online grocery, between allowing customers to place orders online and pick them up in-store, and testing deliveries with both associates and ride-sharing platforms like Uber and Lyft.

“We are cultish about how we think about the customer,” says Jeff, adding that there’s potential to launch a grocery delivery program “at a cost that’s disruptive to the market.”

That involves experimenting with self-driving cars as a delivery option. In November, the company announced a partnership with Ford, a test that connects Walmart’s pre-existing partnership with Postmates and Ford’s digital platform.

Similarly, Walmart tested autonomous pick-ups with Waymo, a Google project that has since become a stand-alone subsidiary of Alphabet Inc. The “self-driving grocery chauffeur” pilot was open to 400 customers in Chandler, Arizona. More recently, the retailer tested autonomous grocery delivery in nearby Surprise, Arizona, with Udelv, a company that custom builds cargo vans.

Why is Walmart investing heavily in AI? “We have to.”

Last week, Fortune reported that Walmart plans to make 2,000 tech hires this year. We’ve already written about the company’s attempts to clean up the industrial food chain with blockchain. And over the years, Walmart has filed about 1,500 patents for everything from a smart shopping cart that detects shoppers’ heart rates to a temperature-controlled delivery vehicle.

Still, while Walmart’s tech investments don’t end with AI, the technology will play a huge role in the company’s strategy moving forward.

“We have more data than nearly everyone in the world. We’re making heavy investments in artificial intelligence and machine learning to grow our business,” says Jeff. “Why? Because we have to.”