JD.com and Alibaba create indexes to identify Chinese shoppers’ spending trends, which help retailers gain insight.
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Walmart.com trails Amazon.com in other ways, as well. For instance, Amazon was No. 2, after Netflix.com, in an annual customer satisfaction survey last year by web site experience specialist ForeSee Results. Walmart.com was No. 12.
Wal-Mart clearly wants to change online shoppers’ views of Walmart.com. And the fall price wars over books and DVDs were a way to present Walmart.com as a low-price leader online, without cutting prices across the board, says Frank Luby, partner and retail pricing specialist at consulting firm Simon-Kucher & Partners. “They want to get the attention that comes with those moves, without having to lower prices on 100,000 books or all their DVDs,” Luby says.
The price war did bring consumers to Walmart.com-its books category attracted 17% more visitors in October than a year earlier and its DVD section drew 14% more visitors in November than October, Compete says. But Amazon still drew more than 40 times Walmart.com’s book traffic in October and more than five times the DVD traffic in November.
The price competition highlights one of the key challenges facing any store-based chain selling online: how to reconcile prices in stores and on the web. Low web prices could undercut store visits, while high web prices mean the e-commerce site can’t compete.
There are no easy answers, says Paula Rosenblum of consulting firm RSR Research. “Depending on where you want to drive traffic, you either make the Internet the highest-priced zone or the lowest-price zone,” she says. “It remains the single biggest bugaboo for multi-region, multichannel retailers.”
Another challenge facing Walmart.com is in increasing its online selection, which is far below the estimated 10 million SKUs available on Amazon.com, many offered by outside merchants.
Wal-Mart took steps to address that gap in August with the launch of the Wal-Mart Marketplace with three outside merchants: luggage and handbag e-retailer eBags.com, home furnishings merchant CSN Stores LLC and multichannel licensed sports apparel retailer Dreams Inc. But, unlike Amazon, which allows other merchants to compete with Amazon, at least initially the three merchants can offer only items Walmart.com does not sell itself.
That approach won’t lead to a marketplace with the breadth of selection, and low prices, of Amazon, says Mitchell of Goldman Sachs. “You want to have as many good sellers in your ecosystems as possible to attract more buyers,” he says. “But I’m not sure Wal-Mart will ever do that.”
With shipping, too, Walmart.com’s approach is different from Amazon’s. About 5% of Amazon shoppers, or about 2-3 million U.S. consumers, have signed up for Amazon Prime, which offers unlimited free two-day shipping for $79 a year, and they account for perhaps 30% of Amazon’s volume, Mitchell estimates. That high percentage of sales suggests Prime generates repeat traffic to Amazon.com.
But a program of unlimited shipping directly to consumers doesn’t bring them to stores. And while Walmart.com offered low-cost shipping on electronics products last fall, its focus has been on driving traffic to stores with a free Site to Store option on some items. Here again, Wal-Mart faces a tension between web and store channels. “Offline retailers are somewhat conflicted if they discourage store attendance through a Prime-like program,” Mitchell says.
For its part, Wal-Mart says customers are embracing the site-to-store shipping offer. Castro-Wright cited a nine times growth in customers using Site to Store in the Oct. 31 meeting with analysts. But the company won’t say how many customers use the service, just as Amazon does not say how many people have signed up for Prime.
And while boosting web sales is a priority at Wal-Mart, it’s not the No. 1 goal, says Jim Okamura of consulting firm J.C. Williams Group Ltd. He notes Wal-Mart executives talk about multichannel integration as one of their strategic priorities, often in the context of a five-year initiative launched last year called Project Impact, that includes sprucing up stores, employing available space more efficiently and using the web to extend assortments, especially in smaller stores.
For instance, in a prototype Wal-Mart store in the near-Chicago suburb of Mount Prospect, there is a drive-through window where customers can pick up items ordered online, the Site to Store pickup desk is in the front of the store instead of in the back as in most Wal-Mart stores, and there are terminals near the entrance where customers can place orders at Walmart.com, says Mara Devitt, a partner in retail consulting firm McMillan Doolittle, who visited the store recently.
The prototype store is one of a handful Wal-Mart opened last year as the company remodeled smaller stores-typically around 100,000 square feet, just over half the 185,000 square feet of a typical Wal-Mart supercenter. The Mount Prospect store is devoted half to groceries, a primary driver of in-store visits, and much of the rest to fast-moving merchandise, says Mary Brett Whitfield of consulting firm Retail Forward, who visited the store.
Prominent signage encourages shoppers to go to Walmart.com for items they don’t find in the store. “They’re consciously assorting the store so you have the quickest-turning, quickest-need merchandise in the store, but letting shoppers know there’s more available online,” Whitfield says.
The combination of a smaller store and web integration is no accident. Wal-Mart has been targeting such major cities as New York, Los Angeles and Chicago where it has little presence, chipping away at political opposition through its environmental initiatives and support for health care reform.
Big cities represent a major opportunity for Wal-Mart: the chain accounts for only 3.9% of retail sales in 15 major markets, compared with 8.9% of total retail sales, the company has told investors. Smaller stores-with merchandise selection augmented by ready access to Walmart.com-are a natural fit for urban areas where real estate is expensive.
“The format that is being tested in Mount Prospect is exactly that, a high-efficiency version of a Wal-Mart supercenter that can work in densely populated areas,” Devitt says. She says the concept will be tough to beat, and thinks Wal-Mart’s overall strategy could enable it to overtake Amazon on the web. “Not next year,” she says, “but three to four years out.”