Why Walmart Wont Win the Web

It's curious, actually, that Walmart has not come to dominate the web as it has so much else. The largest retailer in the world - by several degrees of magnitude - was the first to really apply technology on a massive scale to make its business more efficient.

It pioneered the exchange of data with suppliers which reduced supply chain costs and times while enhancing profits - more for itself, to be sure. It also insisted on the introduction of radio frequency identification (RFID), a ground-breaking and expensive investment in efficiency. Walmart has created opportunities for those who innovated, cooperated and acknowledged their obligation to the merchandising behemoth.

So it would seem like a natural step to combine that scale and embrace of technology to beat Amazon at its own game. Certainly the management experience, financial resources and operational expertise can be coordinated to focus on dominating the web as it has retail.

There are those who say that Amazon's singular focus on ecommerce and its digital culture give it an advantage. But mobile has proved vexing for almost everyone attempting to merchandise these days. So the reason probably lies elsewhere.

It seems, in fact, that the primary challenge facing Walmart has less to do with its management and technology than with its customers. And especially its customers' demographics. Walmart has endured five quarters of declining profits and expects more of the same. Its customer base has seen their household incomes shrink for over a decade, government assistance is declining in the austerity era and prospects for an economic recovery remain dim.

In short, Walmart probably wont win the web because too many of its consumers have limited access to it, don't own credit cards nor have the financial wherewithal to obtain them and often dont live in the sort of accomodations where a delivery can safely be scheduled without assurance that someone will be home to accept the package.

The reality is that Walmart's every day low price strategy contributed both to declining wages, increased part time employment and the offshoring of jobs, all of which led to its customers' inability to shop there. Henry Ford would be shaking his head. JL

Mike Schoultz comments in Digital Spark:

The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time. - Henry Ford

Beat Amazon? All of a sudden, Walmart has gotten serious about this E-commerce competition. Why? It’s all about the future and the current trends. And the Walmart e-commerce strategy.

According to Nielsen, e-commerce will gain more ground than any other segment of the retail industry by 2017, with a compound annual growth rate of 11% each year. Supercenters come in second, with their growth rate projected at only about half that of web shopping. When you consider sales for consumer packaged goods online — food, groceries, everyday items — are more like high double digits, almost 20%, you can see Walmart’s concern.

Both chains dominate their areas of expertise. Once just a bookseller, Amazon is now the biggest online store in the world with $61 billion in 2012 revenue. Walmart is the world’s largest retailer of any kind with $469 billion 2012 revenues (estimated $7-8 coming from E-commerce in 2012).

Walmart is doing all it can to catch up with Amazon online.  But lots of obstacles exist.

We don’t think Walmart can catch Amazon for these 6 reasons:

Amazon’s singular focus
Amazon is an e-commerce company in everything they do. They have developed all their expertise in full support of e-commerce. In fact they now do e-commerce for many other businesses. They are not hamstrung by an enormous brick and mortar business like Walmart.

No internal competition like what Walmart faces day-in day-out. Walmart doesn’t discuss this subject and probably would deny it exists. But it does. No question there. And it yields a gigantic silent advantage for Amazon.

Logistics and delivery
Logistics is what made Walmart great. But delivery is a different matter. Walmart is dabbling in same-day delivery and even going a step further than Amazon by using stores as fulfillment centers and if expanded, could turn 4,000 stores into bases for same day delivery.

Two-thirds of the U.S. population lives within 5 miles of a Walmart, and trucks crisscrossing the country arrive daily to replenish the stores, which can greatly reduce shipping costs. However, the process comes with serious limitations, particularly since it diverts workers’ attention away from ensuring stores are clean and properly stocked. But it is still a possible big advantage to Walmart if they could think like one business instead of two.

They are also attempting to crowdsource package drop-off among customers.

But Amazon has non-perishable products like diapers that its infrastructure allows shoppers to set up regularly scheduled deliveries, a service popular on Diapers.com. A fantastic feature.

And Amazon is already a step ahead with its Amazon Fresh same-day delivery, currently available in the Seattle area but soon headed for California. Amazon is building out this infrastructure for perishables. Groceries will be the battleground very soon coming to the forefront. This will further eat into solid Walmart business.

But what is Walmart doing? They are creating a vast new logistics system that includes building new warehouses for Web orders. Hedging their bets so to speak. More illustration of the internal competition in our mind.

As Walmart’s online orders have grown, it has turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs. Walmart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Walmart’s popular purchases are low-cost items like $10 packs of underwear.

Agile Innovation
Amazon has existed in the ecommerce technology world since their inception. They think like a technology company and agile innovators. They are not afraid to try new things and they can get things done quickly, thanks to the culture their CEO Bezos has instilled.

Walmart may not be a start-up, but it does try to think like one with its Walmart Labs division. Those groups is developing Pangaea, a global technology platform with scan and go apps that let shoppers buy in store via a smartphone, and online operations in growing markets outside the U.S. such as Brazil and China. They’re doing more new things, but they are slowed down by their legacy business and its mindset.


They are as trying out lockers, one of Amazon’s hallmarks, allowing shoppers to order items online and pick them up in stores — crucial for the Walmart demographic, a quarter of whom reportedly do not use debit or credit cards or even have a bank account. But why would an on-line shopper want to deal with the congestion of a visit to a Walmart mega store? Not us.


Customer set differences
Walmart demographics, a quarter of whom reportedly do not use debit or credit cards or even have a bank account, represent a big difference with their key e-commerce competitor. While we have not found any statistics on Amazon customer set, we speculate a much larger representation of higher end incomes among their shoppers. Big advantage to Amazon we believe, both in consumer disposable income, but also in ability to operate and shop on-line. And take advantage of frequent new technology features.

Existing in-store strategies
Walmart has an enormous and growing network of brick and mortar outlets — 4,000 in the U.S. and counting. More internationally. With those stores goes an equally enormous product offering. A blessing but an equal curse. They are a long ways on being able to put all the products on-line where they can be easily found.

At some stage these stores and product line may be an advantage for Walmart. But those are technology constrained goals that are, for now, out of reach. And that is not even considering how Walmart might solve its internal competition problems. Can you imagine the Wal-Mart cash cow making compromises in terms of revenue and profit to help their e-commerce business? Not us.

Technology lead
Like Amazon, Walmart has a massive product offering. This isn’t a new problem for either of them, but as the race to fulfill orders guarantees quicker turnaround times and more convenience after placing the order, Walmart must control everything it can before the order is placed to ensure it’s actually placed through them. In this case, that means making sure customers can find what they’re looking for, quickly and easily. Or, in the case that customers don’t know exactly what that is, helping them figure it out with a fairly high degree of accuracy.

Walmart must transform itself into an invisible personal shopper to help customers navigate its vast inventory.

What exactly would that take? A lot. But Walmart’s two most crucial priorities will be helping online customers navigate its extensive product list easily and quickly, and streamlining online and offline operations to create a turnkey overall experience.

To act as an invisible personal shopper, Walmart must master what they do with this powerful combination of content and data—and when they do it. The goal is to use it in real-time, as customers are browsing their online store.

Walmart is trying to improve links between its store inventory, website, and mobile phone apps so that more customers can order online and pick up their purchases at stores, which half of Web customers do already.

Walmart is trying Web-based shopping tactics, like its Pay With Cash program for Walmart customers who don’t have credit cards. The new program allows them to reserve products online and pay cash at their nearest store.

Key takeaways
At the end of the day, Walmart’s rise to online dominance really just revolves around turning an otherwise complicated shopping experience into one that feels quaint and easy. It can accomplish this by setting up a strong behind-the-scenes infrastructure that puts the customer experience at the forefront.

And isn’t that what their new strategy is all about—giving the customer what they want where and when they want it?

Unfortunately it is much easier said than done.