The social network is making the 15-second ads available to a select group of advertisers. The videos start playing without sound. When a consumer ...
Wal-Mart’s web strategy is not to take over e-retailing. Rather, it’s to use the web to extend its grasp on store-based selling.
As it squeezes out local competition and seizes control of a widening variety of product categories and services, Wal-Mart Stores Inc. is well on its way toward a stated goal of global retail domination. That may have independent retailers and its national big-box store competition on the run, as well as those, like the grocery segment, whose territory has been invaded only more recently.
But e-retail leaders aren’t likely to feel more than a pinch from Wal-Mart.com for now, experts say. That’s because, though the world’s largest corporation may be shooting for the moon, its web site remains bound by the market dynamics of Earth, like the fact that online shoppers don’t buy paper towels- the kind of low-price commodity that’s historically brought shoppers into Wal-Mart.
But that doesn’t mean Wal-Mart doesn’t have a web strategy or that it is ignoring the newest retail distribution channel. Rather, it means, analysts say, that Wal-Mart is looking beyond selling at a broader spectrum of how the web site can contribute. Just as it used technology and innovation to become the world’s largest retailer, Wal-Mart is using the web for many other purposes.
The web has assumed a primary utility to Wal-Mart in areas that retailers who are more narrowly focused on maximizing online transactions have viewed as secondary benefits. Walmart.com offers Wal-Mart the ability to extend inventory, test new products and categories at relatively little expense, educate consumers about higher-priced products it sells, strengthen customer relationships and further leverage ad dollars it’s already spending offline.
“Since the height of the Internet euphoria, people have started thinking more rationally about what they need the Internet to do and what it can do, given where they are positioning themselves in the landscape,” says Mary Brett Whitfield, analyst at retail consultants Retail Forward Inc. “It’s much more about overall positioning in the marketplace than it was in 1999. Wal-Mart is approaching what they do online appropriately, given who they are and what their unique selling proposition is.”
Wal-Mart doesn’t break out web sales from consolidated sales results, but it’s a safe bet that with total sales of about $245 billion and the web accounting for perhaps 2% of all U.S. retail sales, online sales’ contribution barely amounts to a blip on the corporate radar screen. Retail Forward estimates that in 2002, Wal-Mart’s online sales were about $135 million. Contrast that with Amazon.com, which sold more than $3 billion online in 2002, or even department store retailer J.C. Penney, which sold $324 million online last year, according to Retail Forward.
A number of factors come together to keep Wal-Mart from being a web powerhouse. The first is that with store sales that beat everyone else’s, they don’t have to lead online to stay on top. Another is that the commodities on which Wal-Mart made its low-price reputation don’t sell profitably online. And shoppers don’t need to go online to research them because they don’t require research. Further, affluent consumers who got online first and spend the most while there don’t overlap with Wal-Mart’s less affluent core customer base, of which perhaps 65% are now online, according to Wal-Mart’s estimate, and 70% according to Retail Forward’s estimate. By contrast, 83.3% of frequent shoppers at the more upscale Target stores are online, Retail Forward says.
“I have a hard time imagining that the Internet will ever be as important to Wal-Mart’s business as it is to the businesses of companies like Sears and Circuit City,” says Jupiter Research Inc. retail analyst Ken Cassar. “At the end of the day, the Internet will always remain a small percentage of total retail. As such, it’s not really necessary that Wal-Mart be the dominant online retailer.”
It’s no surprise then that Walmart.com is utilitarian, especially compared to the Amazons and Lands’ Ends of the world who lead on the web with tools and technology that dazzle. While sites like Sharper Image, Polo.com and QVC.com experiment with rich media, feature visually arresting product imagery and even offer on-demand product video, the online arm of retail’s low-cost leader does not. Product photos can be enlarged for detail, but the site does little to romance merchandise presentation. Virtual model or wardrobe selection features? The web site doesn’t offer the apparel available in Wal-Mart stores. With a few exceptions, Wal-Mart hasn’t positioned Walmart.com as a destination site for people who don’t already shop Wal-Mart stores. “It has more than the basics, but it doesn’t have all the bells and whistles,” Whitfield says.
Retail consultants point out that Walmart.com’s toy offering, for example, while having the basics and some hot items, doesn’t offer a selection that comes close to rivaling what Toys “R” Us and KB Toys offer online. But with Wal-Mart owning an estimated 20% of the U.S. toy market through store sales, the web doesn’t have to drive Wal-Mart’s success in toys. Its role relative to toy sales is not to bring in new shoppers by offering a killer assortment that outstrips the competition’s, but to afford convenience: another way to purchase the items already popular in its stores.
And that’s typical of how Wal-Mart uses its web site: to complement store sales and extend their reach and scope. It’s a shift from the thinking that characterized e-commerce only a few years ago, when web sites attached to brick-and-mortar operations strove for independence and possible IPOs.
Wal-Mart was no exception. Late in 1999, the company announced plans to spin off Walmart.com, which had launched in 1998, into a separate entity, the better to ride the rising e-commerce wave. At the time, the notion was simply to replicate as much of the store as possible, as quickly as possible, on the web site. But soon enough, multi-channel retailers began to realize that independence wasn’t always the best route to success, and by July of 2001, Wal-Mart had acquired its online operation and rolled it back into the fold. In the meantime, it had re-designed Walmart.com and pared down its product offerings from everything in the stores to what made sense to present on the web.