Online sales will reach $13 billion in 2014, says global e-commerce chief Neil Ashe.
Don Davis , Editor in Chief
Wal-Mart Stores Inc. executives highlighted several advances in the retail chain’s e-commerce program during the company’s annual meeting with investment analysts today.
They include an expanded assortment on Walmart.com, an improved free shipping program and plans to offer the merchandise available on Walmart.com to consumers who shop SamsClub.com, the e-commerce site of Sam’s Club, the retailer’s warehouse club.
“The biggest opportunity we have is winning the intersection between physical and digital retail around the world,” president and CEO Mike Duke said in his opening remarks to the gathering. “We’ve never been more connected across the company on e-commerce, and our results demonstrate this.” He said Wal-Mart’s online sales are up 30% this year over last, repeating an estimate company executives provided in August.
Neil Ashe, the retail chain’s global e-commerce chief, said that sales on Walmart.com, No. 4 in the Internet Retailer Top 500, are on pace to meet or exceed his earlier projection of $10 billion this year, and would reach $13 billion in 2014.
He said Walmart.com now offers 5 million SKUs, up from 2 million last year. Of those, about 20% are products that Wal-Mart owns, and the remaining SKUs are offered by sellers on Walmart.com’s growing marketplace. A typical Wal-Mart supercenter has 150,000 SKUs, he said. The company earlier this year disclosed plans to invite more retailers to sell on Walmart.com in order to fill gaps in the merchandise the retailer offers online. Ashe says Walmart.com has the lowest price on the web for 70% of the items it offers.
He also said that Walmart.com now uses a personalization system developed internally that draws on data Wal-Mart has about customers and demand, both in stores and online. That follows Wal-Mart’s introduction last year of a homegrown site search feature, part of a broader e-commerce technology upgrade project known as Pangea. Ashe said the improved site search feature had raised conversion rates by 20%.
The new site search is being rolled out to SamsClub.com, Ashe said. He added that the retailer will soon offer items from Walmart.com to Sam’s Club members shopping on SamsClub.com.
Turning to fulfillment, Joel Anderson, president of Walmart.com U.S., said Walmart.com this weekend introduced a new program that offers free shipping on orders over $50 on 98% of the items Wal-Mart itself sells online, an increase from 15% last year. Orders from marketplace sellers count toward the $50 minimum and half of their items are eligible for the free shipping program, a Wal-Mart spokesman says. The free shipping program guarantees delivery in six to nine days; a consumer can upgrade to delivery within three to five days for $2.97. For orders under $50, Walmart.com charges $4.97 for standard delivery and $6.97 for 3-to-5-day delivery.
Despite the growth in the number of SKUs available on Walmart.com and covered by the free shipping offer, the retailer is still far behind Amazon.com on both counts. There are some 230 million SKUs for sale on Amazon.com, and 21 million are eligible for free shipping under the Amazon Prime program, estimates Colin Sebastian, an analyst for investment firm Robert W. Baird & Co. who follows Amazon. Amazon does not disclose either figure.
The Wal-Mart executives pointed out that their free shipping offers do not require a consumer to pay an annual membership fee, an apparent swipe at Amazon Prime, the program of Amazon.com Inc., No. 1 in the Top 500 and a key Wal-Mart rival. Amazon Prime charges $79 for a year of free shipping and other perks. An analyst noted that Amazon Prime appears to have encouraged members to shop frequently at Amazon.com and asked if Walmart.com planned to introduce a similar program. “I wouldn’t expect us to do exactly what some other competitor has done,” Ashe responded. “But we are clearly focused on how do we drive frequency going forward.”
Walmart.com can now deliver 15% faster than it did a year ago, and at a 10% lower cost, as the company builds out its e-commerce fulfillment network, Ashe said. Wal-Mart recently opened a new e-commerce fulfillment center in Fort Worth, TX, and announced plans to open another one early next year in Bethlehem, PA, adding a total of 2 million square feet of fulfillment space. Ashe said Walmart.com needs five to 10 strategically placed fulfillment centers in order to deliver online orders quickly to its U.S. customers. A spokesman declined to say how many dedicated e-commerce warehouses there are today, saying the Walmart.com fulfillment centers often are part of larger facilities that serve stores as well. Ashe said each new fulfillment center would cost between $15 million and $90 million to build.
The Wal-Mart executives also announced today an expansion of the company’s test of delivering fresh groceries to the Denver area. Wal-Mart has been testing its Walmart To Go service in the San Jose/San Francisco area for a couple of years, but the Denver test is noteworthy because that’s a metropolitan area where Wal-Mart operates many stores, unlike in the Bay Area. Anderson noted that Wal-Mart has gained experience from its Asda subsidiary in the United Kingdom of how to combine online grocery sales with store sales, and wanted to test out the concept in the U.S. in a market where it has stores.
“We believe the opportunity for online grocery around the world is tremendous,” Ashe noted.
Anderson also disclosed that, effective with the current fiscal year, Wal-Mart stores are getting credit for online orders from consumers who live nearby, in an attempt to ensure that store employees have an incentive to encourage store customers to order online and to provide good service when customers pick up online orders in stores. Wal-Mart, in a test, is also using 35 stores to fulfill online orders. Ashe said employees in those stores are specially trained to pick items from store shelves, pack and ship them.
Wal-Mart is also growing online sales internationally, company executives said today. Fernando Madeira, president of global e-commerce for Latin America, said that the company’s Brazilian e-commerce site, Walmart.com.br has doubled revenue in the past year and increased traffic by three times. He said there are now 12 million visitors to the site each month, though he did not disclose sales. He said the Brazilian site’s redesign will launch this week, and that the site will increase its SKU count this year from 40-60,000 to 1 million. Wal-Mart also operates e-commerce sites in Argentina, Chile and Mexico, though Brazil is the biggest in volume.
Yihaodian, the Chinese online retailer in which Wal-Mart owns a 51% stake, is drawing double the traffic this year than last, Ashe said. He said Wal-Mart is using its global reach to expand the assortment Yihaodian offers, for example bringing in Danish cookies from Asda in the U.K. He also said Yihoadian now sells 90,000 units a day of imported milk, an item much in demand among Chinese consumers concerned about contamination of domestic milk.
Shanghai-based Yihoadian mainly sells fast-moving consumer goods and has focused on China’s biggest cities, but now it is moving into second-tier cities, Ashe said. Like many of its online rivals in China, Yihaodian has promised same-day delivery in big cities, and Ashe said that the Chinese company recently became the first to guarantee delivery within a two-hour window to customers in Shanghai.