Why Walmart is losing the e-commerce game

Discussion
Mar 18, 2016
Keith Anderson

Through a special arrangement, what follows is a summary of an article from Retail Dive, an e-newsletter and website providing a 60-second bird’s eye view of the latest retail news and trends.

While Walmart is certainly investing in customer service initiatives at its physical stores, it’s spending at least that much to boost its digital efforts.

Yet Walmart reported just eight percent growth in online sales in the fourth quarter, well below Amazon.com’s 22 percent. Target’s online sales grew 34 percent, helped by its holiday-time free shipping policy.

On the face of it, it seems Walmart must do more to catch up.

Retail experts say e-commerce is necessary for Walmart or any retailer of any size, just because the industry’s center of gravity has shifted to omnichannel with consumers expecting goods to be available when and how they want to buy them.

Yet Walmart’s e-commerce operation remains highly complex and a minuscule part of its overall business. Keith Anderson, VP of strategy and insight at Profitero and a RetailWire BrainTrust panelist, told Retail Dive in an e-mail, “They sell food and non-food; run an online marketplace and a traditional e-commerce business; offer delivery and click-and-collect; and they attempt to operate across four continents with enough freedom to be locally relevant and enough standardization to be centrally manageable.”

“They’re in a tight spot because their customer doesn’t index well to e-commerce,” adds retail futurist Doug Stephens. “In order to [significantly grow online sales] they really have to change their brand and value proposition, and that could disenfranchise their core customer.”

Mr. Anderson believes Walmart may try to “out-Amazon Amazon” on the fundamentals of Amazon’s growth engine: price, selection, convenience and experience. A better move would be to leverage Walmart’s unique capabilities and assets to build a world-class omnichannel operation.

“The next few years will be critical for Walmart, which will likely need to sharpen its focus and double down on the e-commerce markets and segments best positioned for market-beating growth,” he said. “As this pressure to accelerate growth intensifies, there may be calls for Walmart to consider more acquisitions in this space.”

Image: Walmart

DISCUSSION QUESTIONS: Why is Walmart struggling to gain traction in e-commerce? Is e-commerce just a bad fit for Walmart’s size and customer profile?

Braintrust
"Walmart’s whole raison d’être is rooted in physical stores today. E-commerce is just an accommodation at worst and a foundation stone to the future at best. Comparing Walmart’s e-commerce efforts to Amazon’s is like comparing a single unit, five-star restaurant to McDonald’s."
"It’s not about Walmart’s size, it’s about its customer profile and its product mix. It will never be Amazon and, frankly, its shareholders wouldn’t let it be Amazon even if it could. I think the "pressure" to improve is misguided."
"Amazon still garners strength from "future potential," whereas Walmart and their online efforts are being scrutinized by their current P&L. Life in Bentonville has seen better days."

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23 Comments on "Why Walmart is losing the e-commerce game"

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Dick Seesel
BrainTrust

Two observations in the article really resonate: First, the Walmart customer target and brand profile may not align with the demographics of more successful e-commerce operations. (In other words, too downscale.) Second, Walmart is in several commodity businesses where it can be out-assorted, out-priced and out-executed by Amazon.

It’s hard for any aspiring omnichannel retailer to grow the top line with these kinds of e-commerce sales trends. It’s even harder as Walmart continues to grapple with mature sales in its brick-and-mortar stores.

Ryan Mathews
BrainTrust

Everything in retail is “of the moment” and at this moment, when it comes to e-commerce at least, I’d say Walmart’s customer demographics are working against them. But that doesn’t mean that contemporary status quo will be maintained forever.

And, let’s try not to lose sight of the obvious — Walmart’s whole raison d’être is rooted in physical stores today. E-commerce is just an accommodation at worst and a foundation stone to the future at best.

Comparing Walmart’s e-commerce efforts to Amazon’s is like comparing a single unit, five-star restaurant to McDonald’s. You can do it, but why bother? Amazon simply isn’t the metric against which Walmart’s digital strategy should be measured.

So, let me finish answering the question with a question: “Who’s to say they are struggling?” An 8 percent uptick in digital sales for a brick-and-mortar retailer may be just right. And where they are today may or may not be an indicator of where they — and more importantly their customers — are likely to be tomorrow.

Chris Petersen, PhD.
BrainTrust

Differentiate or die. What is Walmart’s value proposition for e-commerce?

Walmart carries the historical legacy and baggage of “always” … always low prices. In today’s omnichannel world, Walmart can’t always compete on lowest prices. Amazon doesn’t even try to be lowest all the time.

What is Walmart’s value proposition for consumers, particularly in the U.S.? What is Walmart’s value proposition that would attract sellers to their “marketplace”?

Walmart’s traditional store value propositions of price, selection and convenience are being matched and often exceeded by Amazon and other e-commerce players. Walmart should have the IT infrastructure and systems to build a world-class omnichannel capability that is attractive to both consumers and sellers. A key question is whether Walmart will continue to focus on “selling things” to customers or be able to transform to a world class e-commerce platform.

Paula Rosenblum
BrainTrust
I’m going to repeat what Doug said in this piece, because I think it’s the core issue: “They’re in a tight spot because their customer doesn’t index well to e-commerce,” adds retail futurist Doug Stephens. “In order to [significantly grow online sales] they really have to change their brand and value proposition, and that could disenfranchise their core customer.” As it turns out, the lower-end the retailer, the smaller their percentage of e-commerce sales. We have Neiman’s at 26 percent, Nordstrom at 19 percent, Macy’s at 8 percent and Walmart and Target (pre-holiday 2015) at 3 percent. Target is pulling up a bit, but that’s because it’s bringing a higher-end consumer back into its stores. And being the country’s largest grocer isn’t helping Walmart either. That product doesn’t translate well online yet. We don’t say that Publix or Kroger are “struggling,” e-commerce is just not where their business lies. It’s not about Walmart’s size, it’s about its customer profile and its product mix. It will never be Amazon and, frankly, its shareholders wouldn’t let it be Amazon even if it could. I think the “pressure” to improve is misguided, and Walmart and its shareholders really do need to accept that… Read more »
Max Goldberg
BrainTrust

Walmart should be able to better compete with Amazon, but they don’t. They are not a go-to retailer for most online shoppers. And when consumers choose to search the Walmart site, they find it difficult to find the products they are looking for. Walmart should enhance its search capabilities.

Finally, Walmart is competing with a larger, more skilled, and more nimble competitor: Amazon. As we’ve seen in some markets (Germany and Japan immediately come to mind), when Walmart runs into better competitors, they sometimes fail. Walmart cannot afford to fail in the online marketplace.

Keith Anderson
BrainTrust

When Walmart engages shoppers across channels, they do well. Consider this data from a recent interview Steve Bratspies gave.

“A Walmart store-only customer spends on average about $1,400 a year. An online customer only spends a couple of hundred dollars. The customer who shops both online and in the store spends about $2,500 with us on average in a year.”

As Dick Seesel noted, the challenge is in attracting shoppers that may prefer not to shop at Walmart stores (regardless of how proximate they are).

Amazon Prime’s lock-in effect (along with Subscribe & Save and Dash replenishment) make it increasingly difficult for competitors to scale their online businesses at pace.

Ian Percy
BrainTrust

Two “investment” categories were mentioned: Investment in physical customer service and investment in digital marketing. But the question posed to us was why the second investment wasn’t working. The first is the one that’s mission-critical.

Do we have any information on whether or not there is a marked improvement in physical customer service? Because if it isn’t happening then it won’t happen online either. Walmart is trying to find its energy again and energy can’t be compartmentalized. It’s there and it draws people in or it doesn’t. Technology won’t fix the problem.

Joel Rubinson
BrainTrust

I suggest we think of this differently. Walmart wins at what? Family shopping experience, prices, selection and comprehensiveness (everything from smartphones to underwear to orange juice). So by not succeeding as well with e-commerce, where are they losing? Simplicity, ease of shopping, Immediate urges. How important are those areas? Pretty important although it’s probably not a death blow if they don’t master e-commerce.

Richard J. George, Ph.D.
BrainTrust

The article highlights the reasons for Walmart’s struggles in the online world. It also underscores the “first mover” advantages enjoyed by Amazon.

I don’t think it is so much a fit constraint as much is it is the inability to leverage its physical presence with e-commerce and create a bona fide omnichannel experience. To become an omnichannel leader Walmart needs to have logistics comparable to Amazon and in-store customer service comparable to Publix. If Walmart could effectively do this it could potentially create strategic issues for Amazon, i.e, force Amazon to play in the brick-and-mortar environment.

Patricia Vekich Waldron
BrainTrust

I’m aligned with Paula and Ryan — Walmart ‘s growth in online is steady and supports their overall global strategy and brand. Measuring themselves (and trying to compete) with Amazon, Target, etc., is the same mistake other retailers made in the past when they tried to compete against Walmart on price.

Camille P. Schuster, PhD.
BrainTrust

Regardless of the fit of online commerce with their customer base today or tomorrow, the fundamental issue is that online commerce is being seen as something separate. With a comparatively small online customer base today, Walmart needs to address the fundamental question now. Consumers see Walmart physical stores and their online store as one company. Sales online or in-store need to be treated as sales to consumers.

Kenneth Leung
BrainTrust

Success is relative. Amazon is built on e-commerce and targets a client base in a higher spending bracket that values service plus price. Walmart is built on a store strategy driven by availability and assortment in stores. Walmart may not be able to outdo Amazon on e-commerce using the same measurement stick, but given its store heritage and supply chain experience, it can be successful in omnichannel retailing with more focus on the stores.

Shep Hyken
BrainTrust

First, as the article points out, Walmart must be a player in e-commerce. Walmart’s a force in the retail industry and must include an omnichannel strategy to remain relevant. For lack of a better term, it’s tables stakes. How far Walmart wants to take it is their choice. Will they outdo Amazon? Of course not, at least in the near future. (Anything could happen!) But they must operate at a level that is on par with their reputation as a retailer.

gordon arnold
Guest
6 months 12 days ago

Walmart is compelled to spend for the stabilization and growth of the brick-and-mortar business. This is where the investment, design and core of the company is. Amazon, eBay and others are e-commerce core business structures and should not be kept as a focus or measuring parameter of Walmart, Target and others. Comparisons of the infrastructure and success of these parallel retailers only clouds the real issue they are having with their markets. If we were to measure all retailers it would need a common goal like omnichannel. To date there is no universal definition for a true omnichannel business plan and therefore no way to set like goals with commonly understood measuring tools. We may wish to study how modern day banking has blended e-commerce with their stores and investment offices for use as a reference to build the much-needed model. The mantra for this endeavour would likely be “retail is retail.”

Mark Heckman
BrainTrust

Amazon has become the generic brand for online shopping across virtually all categories of product and all socio-economic shopper segments. The same image that helps Walmart win over the price shopper among their array of food, drug and mass categories, may be hindering their online appeal among non-Walmart shoppers.

Further, Amazon remains on a path to profitability, whereas Walmart’s shareholders not only demand profitability, but marked improvement in that area year over year.

I keep prognosticating that eventually Amazon will be judged by the same rules that other retailers are, but Amazon still garners strength from “future potential”, whereas Walmart and their online efforts are being scrutinized by their current P&L. Life in Bentonville has seen better days.

Kim Souza
Guest
Kim Souza
6 months 12 days ago
Walmart’s moves are strategic, though the retailer is late to the game versus Amazon. Walmart is growing its e-commerce sales and that rate of that growth should increased more this year as the retailer opens up more it markets for online grocery shopping which are picked up in store. Charles Redfield said this week that Walmart’s U.S. consumers are adapting to online grocery buying at much faster clip than consumers in the U.K. did when it first offered there nearly 2 decades ago. Walmart’s core customers are a good fit for online, the biggest hurdle for the retailer is that Walmart is not the first place consumers think when they are shopping general merchandise online. For example, a Google search for air conditioner replacement filters shows Home Depot, Amazon, Lowe’s and three other online retailers are listed before Walmart. That’ a problem. Walmart is not chasing Amazon; in theory they are two different animals. I think Walmart is slowly transforming itself into an omni-channel player, more like a turtle in a long race. Amazon is a rabbit, sprinting with little regard to what it costs them. Remember Walmart also guards its bottom line profits and dividend for shareholders and that… Read more »
Herb Sorensen
BrainTrust

It is hard for Walmart, and most other people, to accept that the day of giant rat-maze stores, servicing armies of self-service shopper-stock-pickers is beginning an inexorable fade. A half trillion dollar capital inefficient business built on shuffling pallets around globally, will not be able to compete with highly automated and efficient single item delivery direct to wherever the shopper chooses.

I don’t believe they can’t solve this fundamental problem, but they can’t if they don’t recognize that THIS is the problem: Walmart pallets vs. Amazon items. See: The Problem: “Parked” Capital.

James Tenser
BrainTrust

Eight percent YoY growth ain’t half bad, in my opinion. What retailer wouldn’t celebrate a similar same-store growth rate?

I’d propose that Walmart should gauge its online selling performance against what it knows about its core customer base (as several others observe here). There may be product categories and shopper segments that shine brightly.

Lee Kent
BrainTrust

What Ryan said!

For my 2 cents

Arie Shpanya
BrainTrust

Walmart’s stores are its main asset. They have been trying to play catch up with Amazon, but Amazon is clearly at an advantage because it started off as a pure play retailer. Walmart could try to use its website to attract new demographics, but they’ll also need to mobilize their current customers and get them online. After all, the best customers are the loyal ones they already have. Walmart will need to devote substantial attention and resources to get in on the eCommerce growth big box retailers are enjoying.

Vahe Katros
Guest
6 months 12 days ago

Walmart has a bad rap among many AMZN customers — so much so that Walmart might want to offer a choice for unmarked boxes when they ship to bi-coastal customers.

Here in Silicon Valley, if someone volunteers that they work for Walmart Labs it’s usually followed by disclaimers and comments that you would never hear from people working in the cult companies located around here – you know know who I mean.

Harsh comments but having said that: it sounds like Walmart is doing ok and I would never count them out. Their DNA is based on a great man — Mr. Sam.

Perhaps the issue is that in order to win, you need to be able to attract and retain technical A players — and those people seem to connect with people like Bezos and Jobs. Abusive monomaniacs on a mission to change the world. There’s your job description!

Vahe Katros
Guest
6 months 12 days ago

On the retail war with Amazon:

At its present state, I don’t think WalmartLabs even has the capability to make a dent in Amazon’s market share. Due to the following reasons:

1) Only a fourth of the organization has rockstar engineers. Many of them are leaving, because at the higher end, Walmart’s pay is not that great.

2) Management should resist the urge to promote worthless senior managers to directors just because they got a better offer outside.

3) Management should come down hard on people who use respect for the individual for not doing work which they aren’t.

4) Employees should work 12 – 16 hours a day like Amazon. Work life balance is too sweet and no, the engineers aren’t smarter over Amazon to increase work life balance without sacrificing productivity.

5) Bentonville is so ceremony and process oriented and fiefdomed that it won’t make San Bruno succeed.

Jenn Markey
Guest
5 months 9 days ago

Walmart has never truly embraced e-commerce, but treated it as an add-on to their store-based business. As such, Walmart has never truly adopted, let alone optimized, retail tactics and strategies for the online world. Probably the best example is a brand promise to shoppers that is still centered around EDLP. How can you effectively offer EDLP in the online world where prices can easily change several times within one day? What was once one of Walmart’s greatest strengths in-store, now serves to breed shopper mistrust and lost loyalty online.

wpDiscuz
Braintrust
"Walmart’s whole raison d’être is rooted in physical stores today. E-commerce is just an accommodation at worst and a foundation stone to the future at best. Comparing Walmart’s e-commerce efforts to Amazon’s is like comparing a single unit, five-star restaurant to McDonald’s."
"It’s not about Walmart’s size, it’s about its customer profile and its product mix. It will never be Amazon and, frankly, its shareholders wouldn’t let it be Amazon even if it could. I think the "pressure" to improve is misguided."
"Amazon still garners strength from "future potential," whereas Walmart and their online efforts are being scrutinized by their current P&L. Life in Bentonville has seen better days."

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