Walmart quietly built a $6 billion business off its shoppers

Retail used to be a fairly simple proposition where store owners stocked their shelves with merchandise, competed with rivals over price, and tried to entice customers through the doors.

Larger retailers, of course, have always had a pricing advantage because they can make larger orders. A chain like Walmart actually works with its partners to see where they can take cost out of an item or lower the price by placing a larger order.

Retail prices, however, no longer simply depend on what the retailer paid for the item plus its needed markup to cover overhead and deliver a profit. Now, what an item sells for can also be impacted by things like paid memberships and, in the case of Walmart, advertising.

In many ways, Walmart's business has become more like Costco 's, where a large percentage ( roughly two-thirds in the warehouse club's case ) of its profit comes from areas that are not customers buying items off its shelves.

As a consumer, you may not even realize Walmart has an ad business. That's because it's not just about showing traditional ads, directing customers to products, and using other classic advertising techniques.

To understand how Walmart built a $6 billion ad business, you have to understand its purchase of the television company Vizio about 18 months ago.

Walmart Chief Growth Officer Seth Dallaire explained during the Sixth Annual Evercore Retail and Consumer Conference that the TV hardware business "sits adjacent to the advertising businesses that we run."

He noted that he's often asked why Walmart would buy a television manufacturer.

"And the reality is that we sell a lot of TVs at Walmart. And the television business is no longer the domain of the sort of buy it for wholesale, sell it for retail, and keep the margin. The real television business is now post-sale," he said.

Selling a customer a Vizio TV creates a long-term opportunity for Walmart to have access to their living room, bedrooms, and other places where people watch TV.

"It's driven by technology and the operating systems that sit behind the glass on these devices. So that is an area of advertising, connected TV advertising, that complements what we do with advertising products in our e-com businesses and stores," he added.

"For the quarter, our advertising business grew more than 30% for each segment, including 36% for Walmart U.S. Membership fee revenue grew 17% for the enterprise, led by Walmart U.S. Together, these profit streams represented approximately 1/3 of operating income ," CEO John Furner shared during Walmart's first-quarter earnings call .

Walmart has been on the cutting edge of not just controlling what consumers see at home when watching their Vizio TVs, but also the in-store experience, according to analyst Andrew Lipsman.

"For decades, the store was treated purely as a sales channel," said at Beet Retreat LA . "But it's actually a high-quality media environment with massive audiences, contextual relevance and proximity to the point of purchase."

He said the industry has yet to take full advantage of the creative possibilities inside the physical store. Repurposing TV ads won't be enough.

"It's a totally different context," Lipsman emphasized. "There are three-dimensional creative opportunities we've barely begun exploring."

He noted that the market is controlled by a small number of large players.