June 1, 2012, 12:00 AM

Looking Ahead

(Page 2 of 2)

With flexible fulfillment, orders placed online are now shipped one of three ways to the shopper: from the warehouse, the closest Lowe's store with the available inventory or directly from a supplier's regional distribution center. Since the service went live in 2011, the number of orders picked, packed and shipped through the flexible fulfillment option exceeded 275,000, says Lowe's vice president of e-commerce Gihad Jawhar.

As a group, Top 500 chain retailers grew faster than other merchant types such as catalog/call center companies and consumer brand manufacturers in 2011. But chain retailers, like other merchant types, continue to lose ground—and sales—to Top 500 web-only merchants, which led by Amazon.com grew their combined web sales about 32% to $73.39 billion in 2011 from $55.68 billion in 2010.

Store merchants only have a very short time to make their e-commerce brand relevant with consumers. "I can easily see several brand names that won't be around in a few years if all they are counting on is comparable-store sales," Ander says.



It's not all about price: a Wal-Mart store undersells Amazon—and Walmart.com

By Robin Sherk

Price is often cited as a primary reason online retailers, and particularly Amazon.com Inc., are taking market share from stores. But a recent study by Kantar Retail shows that a Walmart Supercenter was lower in price on a basket of everyday items than Amazon.com or Wal-Mart's own e-commerce site, Walmart.com.

For this study, Kantar Retail compared prices of 36 national brand items from four areas: edible grocery, non-edible grocery, health and beauty, and general merchandise. In April 2012, Kantar Retail visited a Walmart Supercenter in New Hampshire, Walmart.com and Amazon.com, to analyze prices across the basket of identical items.

Despite its increasing competition from online, the Walmart Supercenter's basket was the least expensive across the three outlets. (Shipping costs were not factored into the online orders.)

Walmart.com's basket was 7% more expensive than the bricks-and-mortar Supercenter, though its general merchandise basket was the lowest priced of the three. The general merchandise sub-basket also had a more promotional approach online, with its web site-only offers designed to appeal to shoppers considering other online deals. In health and beauty aids, the store and Walmart.com offered identical prices.

Surprisingly, Amazon's basket was 21% more expensive than the Walmart Supercenter's. Amazon's non-edible grocery basket was the retailer's most competitive, beating Walmart.com's non-edible sub-basket by 12%, but it still was more expensive than the Supercenter's.

Several nuances arise when considering these results. In particular, Amazon's promotional tactics and business model impacted price propositions for two shopper scenarios:

Scheduled Stock-ups: Shoppers repeatedly purchasing the same items would find that Amazon offered more competitive prices on certain consumables through its Subscribe & Save program, which offers a flat discount for enrolling in replenishment on a fixed delivery cycle. For instance, a single can of soup at the Walmart Supercenter costs $1.44, but if shoppers purchased a pack of 12 via Subscribe & Save at Amazon, it would cost $1.33 per can. Subscribe & Save offers were not included in this study, but they are quite common; 27% of the items across Amazon's grocery and health and beauty baskets were eligible for Subscribe & Save. Shoppers hunting by item, versus a wide basket, would find many of Amazon's prices better than what its overall result suggests.

Multiple Options: Several of Amazon's general merchandise basket items offered a used version at a considerable discount. If shoppers selected a used copy of an audio CD, for example, it would have cost about 30% less than the new copy ($6.50 versus $9.16). Neither Walmart option provided this flexibility. Moreover, even Amazon's new CD was available from multiple sellers, with 35 options available. Third-party sellers are a key piece of Amazon's broad assortment proposition, as about half of Amazon's basket items were presented through third-party sellers.

Overall, Walmart.com asserted itself as a significant online price contender for a shopper's traditional basket. Still, its top online competitor is transforming customers' shopping experiences by introducing new purchase options. Other rising competitors are also designing new types of baskets online. For example, Bag Borrow or Steal offers rentals for handbags and accessories, while Dollar Shave Club offers monthly razor blade subscriptions at a discount.

As shoppers become used to these unique offers, traditional retailers like Walmart will need to reconsider their conventional basket propositions. At the same time, the evolution in how consumers shop means we need new ways to understand how consumers compare prices and to measure which retailers offer the lowest prices.

Robin Sherk is a senior analyst at Kantar Retail. She can be reached at robin.sherk@kantarretail.com.

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