How Walmart Is Evolving Its Supply Chain

👉️ Welcome to Supply Chain Evolutions. In each edition, I analyze how one public company is evolving their supply chain - using earnings calls, SEC filings, media appearances, and more. This one’s on Walmart.

Walmart built one of the most efficient supply chains in history. Regional distribution centers within a day's drive of every store. The largest private truck fleet in North America. A cross-docking system that moved goods from inbound to outbound without touching storage.

It was designed to move full pallets to stores. That turned out to be exactly the wrong thing to have when Amazon made individual delivery the new baseline.

What followed was a decade of compounding pressure:

• A pandemic that broke the demand signal

• A freight market that collapsed

• A $6 billion inventory disaster

• Two rounds of tariffs that rewrote sourcing economics

Walmart came out the other side running something different. The store network became a fulfillment machine. The supply chain started generating its own revenue. More than 25% of operating income now comes from businesses that trace directly back to the infrastructure Walmart spent a decade rebuilding.

This is the story of how that happened. What broke, what they rebuilt, and what you can take from it.

Let’s get into it.

What's Inside

• The Forces That Hit Walmart's Supply Chain

• What Broke, What Didn’t

• How Walmart Is Rebuilding

• What You Can Apply

The Forces That Hit Walmart’s Supply Chain

1. Amazon Reset the Baseline

Walmart's physical infrastructure was one of the most efficient ever built for moving goods to stores. But that was exactly the problem.

Sam Walton's original insight was simple: build the distribution center first, place stores within a day's drive, and you control the costs. It worked. By the 2010s, Walmart had 42 regional distribution centers, each optimized for moving full pallets to 90 to 170 stores. The largest private truck fleet in North America. A cross-docking system that moved goods from inbound to outbound without touching storage. 

The whole system was built around one job: replenishing shelves.

But none of it could pick, pack, or ship an individual order to a customer's door.

When Amazon Prime crossed 100 million US members, it didn't just raise the bar on delivery speed. It made unit-level ecommerce fulfillment the new baseline expectation for any serious retailer. Walmart's infrastructure, as sophisticated as it was, had no answer for that. 

The $3.3 billion Jet.com acquisition in 2016 bought talent and urgency. It didn't buy a fulfillment network. Building one from scratch, on top of a retail model running on 3 to 4% operating margins, meant years of investment that would drag on earnings before it paid off. CFO Brett Biggs in Q2 FY2018: "Savings from procuring merchandise benefited the margin rate but was more than offset by the mix effects from our growing e-commerce business." He said some version of that for three straight years.

2. COVID Broke the Demand Signal

Most retailers' demand signal went to zero when COVID hit. Stores closed. Foot traffic stopped. The signal was painful but clear.

Walmart's never did.

As an essential retailer, Walmart stayed open through the entire pandemic. That meant the demand signal never went quiet enough to read cleanly. Essentials surged. Apparel collapsed. Grocery spiked. General merchandise swung wildly depending on the week and the stimulus calendar. 

For four consecutive quarters, overall inventory fell while comps climbed, a combination that made planning nearly impossible. In-stock levels dropped below pre-COVID levels in some categories even as customers kept coming through the doors.

Then the signal flipped. 

Stimulus checks hit. Consumers shifted spending toward discretionary goods. Walmart and its suppliers, conditioned by months of shortages and unpredictable lead times, over-ordered to compensate. The logic was sound given what they'd just lived through. The timing was wrong. By the time goods arrived, the demand that justified ordering them had moved on. That inventory would sit on shelves and in DCs and eventually cost Walmart billions to clear.

The specific trap Walmart fell into wasn't complacency or bad forecasting in isolation. It was that its stores were too important, too continuously busy, for the normal demand signal to function. There was no clean off switch that told planners where real demand ended and COVID distortion began.

3. The Freight Market Broke

The supply chain disruptions of 2020 and 2021 didn't just affect what Walmart could sell. They hit the cost of moving everything it sold.

Ocean container rates spiked 5 to 10x on Asia-to-US lanes through 2021 and 2022. Domestic trucking spot rates jumped 50 to 100% above pre-pandemic levels. The driver shortage reached 296,000 unfilled positions by mid-2024. Walmart chartered its own vessels to secure capacity. CEO John Furner in August 2021: "We've chartered vessels... we've secured capacity for the third and fourth quarter." Documented voyages carried between 177 and 247 53-foot containers at roughly $40,000 per day.

It didn't fully insulate them. In Q4 FY2022, supply chain costs came in $400 million higher than expected. The following quarter, three-quarters of Walmart's gross margin decline was attributed to higher-than-expected supply chain costs including fuel and ecommerce fulfillment. Companies that had outsourced their logistics absorbed the worst of the spot market. Walmart had more owned capacity than most, but even that had limits.

4. Consumers Shifted to Low-Margin Grocery

Food inflation hit double digits through 2022. That drove traffic to Walmart, which has always been a grocery destination. But it also meant consumers were pulling back on general merchandise, the categories where Walmart makes real margin.

Walmart was gaining share. Just in the wrong place. 

Every additional grocery trip helped the top line and hurt the bottom line. The mix shift toward low-margin food masked whatever efficiency gains the supply chain was producing. On the earnings calls, executives had to keep explaining why comp growth and margin improvement weren't moving together.

This wasn't a problem Walmart could solve with operations. It was a structural reality of being a full-line retailer during a period of sustained food inflation. But it made every other pressure harder to manage, because the business generating the most traffic was the one with the least margin to absorb cost increases.

5. Tariffs Started Rewriting Sourcing Economics

The first round of Trump-era tariffs in 2018 and 2019 covered roughly $370 billion in Chinese imports. For Walmart, which sourced approximately 80% of its imports from China at the time, that was a significant cost shock. It kicked off a deliberate, slow diversification away from China toward Vietnam, India, and other suppliers.

By 2023, China's share of Walmart's imports had dropped to roughly 60%, per Reuters and corroborating trade sources. That progress took five years and enormous operational effort across sourcing, supplier development, and logistics.

Then the second round hit. In 2025, tariffs on Chinese goods reached 145% before partial de-escalation to 30%. Vietnam, one of the primary destinations for Walmart's sourcing shift, got hit at 46%. India at 26%. The diversification strategy Walmart had been executing for years suddenly looked incomplete. McMillon in May 2025: "Given the magnitude of the tariffs, even at the reduced levels announced this week, we aren't able to absorb all the pressure given the reality of narrow retail margins. The higher tariffs will result in higher prices."

Five forces. Four years. The result was the worst inventory crisis in Walmart's recent history.

What Broke, What Didn't

What Broke

The inventory disaster came first

During the supply chain disruptions of 2020 and 2021, Walmart had aggressively over-ordered. The logic was sound: lead times were unpredictable, ports were backed up, and the safe move was to order more, earlier. By Q3 FY2022, inventory was growing at twice the rate of sales. By Q4, nearly five times: inventory up 26% on a 5.6% comp.

Then demand shifted. Consumers stopped buying discretionary goods and moved spending to food and essentials. The general merchandise Walmart had pulled forward wasn't moving.

By Q1 FY2023, inventory was up 32% on comps of 3%. A ratio of more than 10 to 1. CFO John David Rainey told analysts about one-third of the increase was inflation. The rest was over-ordering and softness in general merchandise.

On July 25, 2022, Walmart issued a midquarter profit warning. McMillon: "The increasing levels of food and fuel inflation are affecting how customers spend, and while we've made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars." On the Q2 FY2023 earnings call, Rainey described approximately $1.5 billion in inventory he'd like to "wave a magic wand" to make disappear. Walmart had canceled billions of dollars in orders. Gross profit rate fell 106 basis points in the quarter.

For the full fiscal year, consolidated gross margin dropped from 24.44% to 23.46%. Operating margin fell from 4.57% to 3.37%. On $600 billion-plus in revenue, that's roughly a $6 billion operating income hit.

Walmart recovered faster than peers. Target's EPS fell 49% in Q3 FY2023 during the same period. Inventory normalized in four quarters, compared to Nike's six from a comparable glut. But the crisis left a mark. Three years later, McMillon was still referencing it when asked about tariff-driven inventory planning: "The bottom line is, yes, we want to avoid what happened back in 2022."

The failed bets compounded the damage

Not everything Walmart tried during this period held up.

• DTC brand acquisitions. Between 2016 and 2018, Walmart spent roughly $400 million acquiring digital-native brands: Bonobos (~$310 million), Moosejaw (~$51 million), ModCloth (~$50 million). All three were shuttered or written down by 2020 and 2021. The brands didn't travel. Walmart's core customer base had no particular reason to buy them, and the premium positioning sat awkwardly next to everyday low prices.

• Jet.com. The $3.3 billion acquisition in 2016 brought Marc Lore and a team that genuinely catalyzed Walmart's ecommerce thinking. But Jet.com as a product was shut down in 2020. In hindsight it was a talent acquisition at a brand acquisition price.

• Internal robotics. Starting in 2016, Walmart worked with Alert Innovation to develop Alphabot, a robotic system for picking online grocery orders inside stores. After more than four years of development, only two sites were operational. In January 2025, Walmart sold the entire Advanced Systems and Robotics business to Symbotic for $200 million. The internal build never scaled.

• Spark Driver labor practices. Walmart's gig delivery network launched in 2018 and has handled 355 million deliveries across 4,200-plus stores. It's also Walmart's biggest last-mile liability. In February 2026, the FTC and 11 states reached a $100 million settlement alleging Walmart misrepresented base pay, tips, and incentives to drivers since 2021. None of this has appeared on an earnings call.

What Didn't

Two things held when everything else was under pressure.

• The private fleet. When the freight market collapsed, the gap between Walmart and everyone else became visible in the margin numbers. During the 2021 and 2022 freight crisis, Target's gross margin compressed 290 basis points. Walmart's compressed 30. Owned capacity, at scale, is a different kind of asset when spot markets go haywire.

• Grocery as a buffer. The same mix shift that hurt Walmart's margins kept its traffic alive. Consumers came to Walmart because food inflation made it the most defensible choice for grocery spending. That consistent foot traffic kept comps positive through the worst quarters, gave Walmart time to work through the inventory glut, and preserved the customer relationships that the ecommerce and advertising businesses would eventually be built on. It wasn't a strategic win. But it was a structural one.

The inventory crisis didn't just cost Walmart billions. It exposed something more fundamental: the traditional retail model couldn't absorb the cost of supply chain disruption and ecommerce investment at the same time. 

Walmart needed the supply chain to do something different: Not just move goods cheaper. Not just move them faster. 

It needed the supply chain to generate its own revenue.

What followed was a rebuild across every function.

How Walmart Is Rebuilding Its Supply Chain

Owning the Middle: Fleet and Freight

While most of retail spent the 2010s moving toward asset-light logistics, Walmart went the other direction.

In 2012, Walmart operated about 6,500 tractors. By 2025: 12,696. 

Transport Topics ranked Walmart the number one private motor carrier in North America in 2024, displacing PepsiCo, which had held that spot for 14 consecutive years. The fleet didn't just grow. It got more expensive to staff, deliberately. In April 2022, Walmart raised first-year driver pay to $95,000 to $110,000. In 2025, it announced plans to double spending on driver compensation covering per-mile pay, wait time, live loads, and unloads.

The result: driver turnover at Walmart runs about 7%. The for-hire trucking industry average is above 90%. Walmart's primary reason for losing drivers is retirement.

That investment looked expensive until the freight market broke. When ocean container rates spiked 5 to 10x and domestic spot trucking jumped 50 to 100% above pre-pandemic levels, companies that had outsourced their logistics paid whatever the market demanded. Walmart had guaranteed capacity. During the 2021 and 2022 freight crisis, Target's gross margin compressed 290 basis points. Walmart's compressed 30.

The fleet also runs a collect freight program where its trucks pick up supplier goods on return trips from store deliveries. Empty backhaul miles become productive sourcing runs. Instead of a supplier paying to ship to Walmart, Walmart's truck grabs the load on the way back. It shifts both cost and control to Walmart simultaneously.

When even the owned fleet wasn't enough during the ocean freight crisis, Walmart chartered its own vessels. CEO John Furner in August 2021: "We've chartered vessels... we've secured capacity for the third and fourth quarter." Documented voyages carried between 177 and 247 53-foot containers at roughly $40,000 per day. It also deployed its own branded containers designed for domestic intermodal, cutting out freight forwarders entirely.

The lesson from the freight crisis wasn't that asset-heavy logistics is always better. It's that owned capacity is a different kind of asset when markets break. You don't get to choose when that matters.

Stores as Fulfillment Nodes

Walmart's store network was built to sell products. It turned out to be the most valuable fulfillment asset in American retail.

4,700 Walmart locations sit within 10 miles of 90% of the US population. No ecommerce competitor can replicate that without spending tens of billions and waiting a decade. When Walmart started routing online orders through stores instead of dedicated fulfillment centers, the economics shifted fast.

Where things stand as of early 2026:

• 55% of online orders fulfilled through stores

• 93% of US households reachable with same-day delivery

• 35% of store-fulfilled orders delivered in under 3 hours

• Net delivery cost per order down nearly 40%

• 5 billion units delivered same-day from stores in calendar 2024

• US ecommerce turned profitable for the first time in Q1 FY2026

• Ecommerce incremental margins running at 12.5%, roughly 3x the company average

That last number is the one that matters most. The infrastructure was already built. Every incremental ecommerce order riding on top of the existing store network carries almost no fixed cost. Add advertising and membership revenue on top of that order, and the margin profile looks nothing like traditional retail.

Walmart+ sits at the center of this. Launched in September 2020 at $98 per year, built around unlimited delivery. External estimates put membership at 25 to 28 million by early 2025. Amazon Prime has 190 to 196 million. The comparison to Prime mostly misses the point.

The value isn't member count. It's that committed delivery subscribers create predictable demand that makes fulfillment planning easier. Members shop twice as often and spend nearly three times as much as non-members. They accounted for nearly 50% of US website and app spending in FY2025. Global membership income hit $3.8 billion annualized, up 21% in Q4 FY2025. A predictable, high-frequency customer base is a supply chain input, not just a revenue line.