Walmart (WMT), the world's largest retailer, is leveraging its biggest competitive advantage — its stores — as it goes head-to-head with e-commerce giant Amazon in the "next era" of retail.

Walmart is converting four of its brick-and-mortar locations into test stores to explore ways to help all of its stores “operate as both physical shopping destinations and online fulfillment centers in a way that has yet to be seen across the retail industry,” John Crecelius, SVP of associate product and next generation stores for Walmart U.S., wrote in a blog post.

“We have an amazing set of assets that have us well prepared for this next era, but we can't stop there. We're moving quickly to use our physical retail stores to not only serve in-store shoppers, but to flex to meet the needs of online shoppers, too, in ways that only Walmart can," Crecelius added.

Walmart operates a fleet of more than 4,700 stores in the U.S. Approximately 90% of the U.S. population lives within 10 miles of a Walmart.

Walmart's test stores will become a "rapid prototype environment," with the product and technology teams permanently embedded on-site, a first for the company. These associates will prototype, test, and iterate new technologies, digital tools, and physical enhancements in the stores, "scaling what works and scrapping what doesn't."

Two of the stores are in Northwest Arkansas — store #2686 in Bentonville and store #4108 in Springdale — while the other two locations will be announced later.

One of the first challenges Walmart is working to tackle is "omni-assortment." Crecelius noted, “The primary objective was to place most of the in-store apparel assortment online, making it shoppable for both in-store and online customers.”

Making a store shoppable online also requires making it easier for store associates to pick those online orders. One small change that's already “yielding big results” is the combination of in-store signage and handheld devices, making it easier for associates to find and pick merchandise, like certain apparel, that wasn't previously available for online shopping. According to Crecelius, the pick time for associates to find an item on the first try has improved by 20% in some categories, resulting in faster order fill times.

In the back of the store, Walmart is speeding up a typically labor-intensive inventory management process of manually scanning barcodes on the exterior of boxes to see which product is ready to hit the sales floor. At the test center, Walmart tried a new app that allows an associate to hold up a handheld device that scans the boxes with augmented reality to highlight which ones are ready to go to the sales floor. The app will be rolled out to all stores early next year, according to Crecelius.

Elsewhere, Walmart has already changed the checkout experience by eliminating lanes. The company is also testing contactless options in a COVID-19 world.

Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.

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