Ten Things that Walmart has Gotten Right about Ecommerce
Listing everything that Walmart Stores Inc. (NYSE: WMT) has done wrong in ecommerce and ranting about it has become a popular game in the investment blogosphere lately. There are now hundreds of articles and blog posts telling readers what a lousy job Walmart is doing in ecommerce.
Even though many of these pundits make some good points, they miss the big picture; Walmart is actually doing a very good job in ecommerce. The world’s largest retailer has made some shrewd moves in online retail; and it has some lessons to offer to investors, entrepreneurs and marketers that are willing to keep an open mind.
Walmart’s recent performance seems to justify this optimism. The retail behemoth’s revenue grew by $1.08 billion during first quarter 2016; rising from $482.13 billion in January to $483.21 billion on April 30, 2016. During the same interlude; Target’s (NYSE: TGT) revenues dropped by $920 million falling from $73.78 billion in January to $72.86 billion in April. It looks as Walmart is getting online retail right and Target is doing it wrong.
Walmart is Getting Online Retail Right
Ten Things that Walmart is doing absolutely right in Ecommerce include:
- Making massive investments in infrastructure. Many large retailers failed online, because they lacked the resources needed to fulfill orders – such as massive fulfillment centers. Walmart plans to send $2 billion on ecommerce infrastructure in 2016 and 2017. The highlight of that spending will be four giant fulfillment centers; each of which will be one million square feet in size and contain up to 500,000 items, The Wall Street Journal reported. The purpose of these centers will be to compete with Amazon (NASDAQ: AMZN). Amazon succeeded online because Jeff Bezos was willing to spend the money necessary to create a massive ecosystem to fulfill orders. Walmart seems to be the only other retailer out there willing to match Amazon in that department.
- Offering the lowest price. The last few times I’ve shopped for items online, I discovered that Walmart’s prices on common items like Tide laundry detergent and Avery labels matched; and sometimes undercut Amazon’s. Low prices were the secret of Walmart’s success and of Amazon’s. This simple strategy more than anything else makes Walmart.com competitive. Much of Amazon’s success comes from its ability to match and undercut competitors. Walmart.com has developed similar capabilities.
- Understanding that logistics is everything. Walmart’s brick and mortar success was built on its mastery of logistics – the ability to deliver vast amounts of merchandises to all those stores quickly and effectively. Like Amazon, Walmart is creating a logistics network to ensure delivery. That deals with one of the biggest complaints customers have about ecommerce; orders that arrive late or worse do not arrive at all.
- Entering the payment arena with Walmart Pay. One of Walmart’s underappreciated capabilities is its ability to process vast numbers of payments quickly and efficiently. The company is greatly increasing its payment capabilities with Walmart Pay; a contactless payment solution similar to Apple Pay. Creating this app puts Walmart in charge of the payment process and gives the company a portal that can accept a wide variety of payments. This move could be a cash cow for Walmart because Alibaba Holdings’ (NYSE: BABA) spinoff Ant Financial; the company behind Ali Pay, has been valued at $60 billion. If Walmart could get the kind of control over its payment system that it has over its logistics, the company could save billions of dollars a year in fees and create a payments platform that would rival American Express or PayPal’s. After all Walmart reported $483.21 billion in revenues for first quarter 2016, so processing its own payments alone could make Walmart a major player in finance.
- Offering free pickup of online orders at brick and mortar stores. This simple strategy could be the smartest move Walmart has made because it uses the website to drive traffic to Walmart stores. “About 40% of people who buy online and come pick up, they’ll go into the store and buy more when they’re there,” Walmart’s Chief Technology Officer; Jeremy King, said of shoppers at the company’s Asda subsidiary in Britain, in a Forbes interview. More importantly it capitalizes on a resource the company already has; brick and mortar locations. Amazon’s recent decision to build its own brick and mortar locations shows how clever this strategy is.
- Understanding the importance of delivery. The next frontier in ecommerce is the front porch or doorstep. Companies like Alphabet (NASDAQ: GOOG) and Kroger Inc. (NYSE: KR) are experimenting with their own delivery services because they understand at some point in the near future customers will do most of their shopping online. These companies also realize that the customers will expect everything to be shipped to their homes; including groceries. Walmart has a good head start on competitors here with its Walmart Grocery service.
- Allowing other companies to sell through Walmart.com. Third-party sellers are responsible for 48% of the sales and 48% of the revenue at Amazon.com, according to Statista. This effectively doubles Amazon’s inventory and revenue with products somebody else pays for. This provides a greater variety at Walmart and drives more traffic to the site.
- Owning the technology. One of the most lessons Walmart has learned from Amazon is to create and control its own technology. One of the Everything Store’s fastest growing profit centers is Amazon Web Services – a technology company. Forbes reported that Walmart has made 15 tech acquisitions and operates its own technology company; WalmartLabs in Silicon Valley. By paying big money to hire top engineers; Walmart creates its own solutions and controls the technology. This gives Walmart the ability to roll out its own solutions without paying a fortune to tech giants. It also gives Walmart the ability to develop and roll out cutting-edge solutions like Walmart Pay fairly quickly.
- Building an ecosystem. Much of Amazon’s success comes from Jeff Bezo’s insight that successful online retail requires an ecosystem. The website is the portal that lets customers access the ecosystem which has many components including fulfillment centers, fulfillment by Amazon, payments, streaming video, Kindle, e-books, cloud storage and much more. Walmart is quietly building its own ecosystem that integrates the stores. Major components include Walmart Pay, fulfillment centers and Walmart Grocery. A lot of the other retailers online forays will fail because they lack an ecosystem, are you listening Target? Walmart’s could succeed because of its ecosystem.
- Understanding that you have to spend a lot of money to make money online. One reason why online retail has taken so long to catch fire is that many of the players; including some very well-financed companies, have not been willing to spend the money to make it work. Almost all of Amazon’s success stems from Jeff Bezos’ willingness to reinvest every penny in the business to grow it. Walmart is the only other retail giant willing to spend money on Amazon’s scale. This has paid off; in 2015 Walmart was the number three US online retailer in traffic, with 87 million visits according to Statista. This was still 101 million less than Amazon’s 188 million, but far ahead of Target’s 60 million visits.
It is still too early to tell if Walmart’s online retail push will succeed, but the retail giant is certainly doing a lot right online. Whether it succeeds or not; many of its competitors could learn a great deal from Walmart’s ecommerce efforts.
