Wal-Mart’s web revenue hardly registers on its ledger. The world’s largest merchant has bigger things in mind for its web site.
By Mary Wagner
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.
Positioning
“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.”
Utilitarian site
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.
Now, Walmart.com seeks to integrate with stores as tightly as possible. Today,
says a Walmart.com spokeswoman, Wal-Mart uses its web site strategically to
add value to its store offering, whether added value is in the form of a broader
assortment of merchandise than in stores, expanded product categories or services
that can easily be accessed online though not necessarily in stores. “Those
areas are where we’ve been focusing our energies online,” the spokeswoman says.
Take books. The average Wal-Mart store carries 1,000 to 1,500 titles, but
Walmart.com offers more than half a million of them, working with an outsource
supplier that ships direct, as it does in several categories. Ditto the more
than 13,000 movie titles and 80,000 music recordings at Walmart.com, which beats
the stores’ assortment hands down.
Wrapping in content
Furniture requires lots of space for display in stores, but since space is
virtually infinite online, Walmart.com offers an expanded selection that includes
large pieces such as sofas, loveseats and mattresses that aren’t available in
stores. Similarly, big screen TVs are a growing category online because while
the stores have only a few models on display, Walmart.com offers several.
Toothpaste and mouthwash may be no-brainers that sell on price alone. But
where it matters, Walmart.com develops content to wrap around products that
represent more expensive and/or considered purchases that can then be purchased
online or off. To promote the sale of its Keepsake Diamond engagement rings,
for instance, Walmart.com offers a jewelry configurator that lets customers
design their own ring. And thanks to content assets purchased from the defunct
Garden.com, shoppers can get information on garden plants that will thrive in
their part of the country by entering their ZIP codes under Walmart.com’s garden
tab, while in-season, live plants can be ordered online or purchased at the
store. The site also offers a digital camera buying guide.
New categories
In addition to supporting the sale of selected bigger-ticket items by letting
consumers research them online, Wal-Mart has used the web to expand into new
product categories. Computers at Wal-Mart can be purchased only online. Wal-Mart
worked with computer manufacturer Microtel and web developer Lindows earlier
this year to bring Walmart.com shoppers a computer with an open-source Linux-based—and
therefore less expensive—operating system pre-installed. Shoppers can even buy
the OS as a stand-alone, but only on the web. “Computers are not a major thrust
at Wal-Mart’s brick-and-mortar stores, but they are one of the primary categories
Wal-Mart sells online,” Cassar says. “The Internet will help it get its foot
in the door in certain categories that are only a small percentage of its offline
business.”
Online’s incursion into new territory doesn’t stop at products. A pilot DVD
rental service debuted online last October, after the company tracked industry
figures quantifying consumers’ shift to the DVD format. To its existing online
photo development service, Walmart.com also last year added online prescription
fulfillment and optical services, as well as a tire service in which tires can
be ordered online for installation at designated Wal-Mart stores.
While the site steers clear of categories such as inexpensive health and beauty
aids, and the groceries responsible for much of the company’s growth over the
past several years, a greater number of items and services in many categories
are now available online at Wal-Mart than off. The newer web offerings align
with a larger corporate focus in which Wal-Mart seeks to grow by continually
testing the outer limits of what consumers are willing to allow Wal-Mart to
be, according to Retail Forward.
Minor ad budget
With universal name recognition, Wal-Mart doesn’t spend a high percentage
of its revenues on advertising. “It’s about 0.3% of revenues. With a sales base
of about $250 billion, that’s $750 million in actual numbers,” says research
firm Morningstar Inc.’s Tom Goetzinger. “It might sound like a lot, but it’s
next to nothing.” Much of that figure goes into Wal-Mart’s warm and fuzzy image-enhancing
television advertising, but it’s Wal-Mart’s monthly circulars, distributed mostly
via inserts to some 90 million households, that get shoppers into their local
stores for specific promotions.
Mention of Walmart.com in the circulars is carefully tied only to what’s available
online. “It’s not even mentioned on the commodity pages or the apparel pages,
but on the baby page where they’re selling strollers and car seats, they tell
customers to find more car seats and cribs at Walmart.com,” says Whitfield.
“They can’t show everything they have in the flier, so they are using the web
to augment what they can show by telling people to look, even decide, online,
then go to the store.” It’s an example of what has become a winning strategy
for multi-channel retailers, says Retail Forward: educating consumers about
what’s worth going online for versus when it pays to go to the store.
“The circulars are a particularly effective form of advertising in terms of
cost of sale, because once they get someone into the store, the ads are so much
cheaper,” says Goetzinger. “If I crank out just as much in circulars, but my
total sales base is $25 billion, that 0.3% becomes 3%. Once Wal-Mart gets people
to the store, the average ticket is going to dwarf the ad cost of getting that
person into the store.”
Supporting role
The web has a supporting role in that dynamic because two years ago, Wal-Mart
extended the reach of the already widely-distributed fliers at virtually no
cost by putting them online. Much of that traffic takes the next step toward
purchase by using the site’s store locator, a feature that in total gets about
1 million uses per month, Wal-Mart says. The web also delivers e-mail marketing
messages to registered Walmart.com customers based on a combination of customer
history, target audience and seasonal promotions.
While the web site seeks in part to entice shoppers into Wal-Mart stores,
the stores return the cross-channel favor, the company says. “Our stores are
a big venue for letting people know that Wal-Mart is online,” the spokeswoman
says. “For instance, before Valentine’s Day, we had signage in our stores letting
shoppers know they could order flowers at Walmart.com and have them shipped
directly to that special someone. That’s something the stores don’t do. But
Walmart.com can, and that is something we were able to convey through the stores.”
Though the web isn’t a big contributor to Wal-Mart’s total sales, it’s likely
to grow in that regard in a way that mirrors the web’s growth in the rest of
retail. “Wal-Mart has certainly not tapped out the U.S. market. But to maintain
historical growth they are likely going to need to attract a more affluent customer,
and that means their product base is going to need to become increasingly appealing
to those consumers,” notes Cassar.
Toward that end, greater expansion online into consumer electronics, which
it appears the company is already doing, could be a good fit. The educated electronics
buyer can find detailed product information from a number of sources online
and off before he buys. With that research in hand, and manufacturers’ product
specifications being identical across all retail outlets, price remains the
only differentiator. Shoppers look for what they want where it’s cheapest, and
chances are it will be Wal-Mart or Walmart.com.
Wal-Mart also is expanding into some slightly more upscale items of apparel,
for example, such as through an agreement that brings Levi-Strauss clothing
into the stores. “Wal-Mart’s goal is to have a 30% market share of everything
they sell, and they only have that in a handful of things. So they are eyeing
everything,” Goetzinger says. After building its grocery sales over the past
decade, apparel could represent the next big push for the company. If it gets
the offering right on the customer side, analysts say, the company would have
a major advantage given the supply chain efficiency it already commands in other
areas.
But what would such moves means for Walmart.com? After all, it pulled an earlier
apparel offering off the web, and except for gift baskets containing specialty
foods, groceries aren’t available online.
Nailing it
The likelihood is that if Wal-Mart can figure out a way to realize a sufficient
percentage in moving those—or any other goods—online, there’s little to stop
it from doing so over time.
“As long as they can take care of the fulfillment, most other categories should
be easily transferable onto the web,” says Goetzinger. “Their scale makes them
extremely efficient with all of their costs. They have an incredible ability
to leverage their IT to generate more sales and productivity.” And while it
may not represent a great deal more in the way of a percent of total revenue,
the web will increase its contribution.
And that’s what should concern any online retailers who think they are immune
to Wal-Mart’s growing dominance. “At some point,” Goetzinger adds, “they will
nail it.”
mary@verticalwebmedia.com
