Will doubling down on e-commerce pay dividends for Walmart?

Discussion
Photo: Walmart
Oct 10, 2016
Tom Ryan

At last week’s investor meeting, Walmart revealed it would be slowing new store openings while increasing investments in e-commerce and digital initiatives.

Walmart management plans to open 130 U.S. stores this year, down from a forecast calling for 135 to 155 openings. For 2017, the company is only planning 55 U.S. openings. In 2015, 230 U.S. stores were opened.

Capital expenditures are targeted at $11 billion this year and next, similar to amounts in 2015. But the spend will shift more to toward online efforts, technology and store remodels.

Instead of new stores, comp sales and e-commerce are expected to drive top-line growth. In August, Walmart reported its eighth straight quarterly increase in comps helped by aggressive pricing, investments in wages to boost in-store service levels, improved in-store positions and upgrades in grocery.

Walmart’s online sales rose 11.8 percent in the second quarter but are expected to accelerate to 20 percent to 30 percent growth in the second half, supported by rapidly expanding third-party sellers on Walmart.com, adding more products overall to Walmart.com, aggressively marketing Walmart.com and the acquisition of Jet.com.

Said Walmart’s CFO Brett Biggs, “Over the next couple of years, given the investments that we’re making, we’d expect ecommerce sales growth to be at the top of that range or even above that 20 percent to 30 percent range.”

Walmart.com will incorporate some of Jet.com’s technology that lowers prices in real time. The retailer will also invest more in mobile pay and online grocery.

Walmart lowered its earnings targets somewhat for coming years in part because of its purchase of Jet.com. The company projects Flat earnings for 2017 and growth of five percent in 2018. Previously, a modest increase was projected for 2017 and growth of five to 10 percent in 2018.

Some analysts saw the stepped-up investments as necessary to compete with Amazon. Wrote Simeon Gutman, analyst at Morgan Stanley in a note, “Omni-channel transformations are costlier and last longer than retailers expect.”

Others were more skeptical.

“I get that you have to be in e-commerce, but you are chasing the 800-pound gorilla,” Edward Jones & Co.’s Brian Yarbrough told Bloomberg. 

DISCUSSION QUESTIONS: What do you think of Walmart’s shift focus away from new stores and toward e-commerce and digital initiatives? What do you see as the potential payoff and risks in such a move?

Braintrust
"Walmart is making the right bet by shifting brick-and-mortar investments to e-commerce. "
"Nobody is wanting for more Walmarts. Its shift in focus towards e-commerce is an insurance plan."
"Walmart has a “prime” opportunity to be a very successful online retailer."

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21 Comments on "Will doubling down on e-commerce pay dividends for Walmart?"

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Tom Dougherty
BrainTrust

It is the only game in town. Walmart has no choice and is quickly realizing that market penetration and share are not as tied to opening new retail locations. It is simply a recognition of ROI.

To compete in this new world of retail you MUST improve on the online experience. Simplicity, variety and discovery. Walmart has a tough road to climb but at least they see the writing on the wall and are forging ahead while other traditional retailers have their heads in the sand.

Max Goldberg
BrainTrust

Walmart’s management is making the right strategic decision by focusing on improving same-store sales, remodels and e-commerce. It’s what consumers want and it provides the company with increased flexibility. It’s also what the competition demands.

Ken Cassar
BrainTrust

Walmart is making the right bet by shifting brick-and-mortar investments to e-commerce. The question is how they will spend those dollars. Walmart needs to invest to catch up with Amazon’s fulfillment infrastructure. Right now, Amazon’s ability to deliver to most of the country profitably within two days is its ace in the hole.

Adrian Weidmann
BrainTrust

Walmart’s focus on e-commerce and digital initiatives is a practical and prudent response to what shoppers want — not to mention direct validation of the threat of Amazon. The physical store will continue to have value and if Walmart gets the digital transformation correct, they will have an incredible hybrid between virtual and physical shopping experiences — a double threat.

I suspect this hybrid store experience will be very different than what today’s shopper is accustomed to. I’m sure there are plenty of folks at Walmart that are paying very close attention to Amazon’s experimentation with physical stores. The challenge for Walmart will be the effective consolidation of all their acquisitions into a single cohesive process that will be valued by their shoppers.

Jasmine Glasheen
Staff
Jasmine Glasheen
Contributing Editor
1 year 2 months ago

Nobody is wanting for more Walmarts. Its shift in focus towards e-commerce is an insurance plan. With Jet, Walmart is able to offer products at cheaper prices than Amazon. Putting money into marketing Jet makes sense.

Again, Walmart isn’t pulling brick-and-mortar stores, just opening fewer in order to invest in the company’s future.

Frank Riso
BrainTrust

It is a good move for Walmart since so many shoppers prefer to shop online. Walmart needs to meet its competition, Amazon and others, when it comes to the billions of dollars in sales from the online business. The risk is that online shopping is just a fad and they do not have enough investment in their stores, but that’s not at all likely. Secondly, retailers will take advantage of Walmart’s new direction to compete with their stores and win back any number of store-shopping customers. I do think there will be a big payback to Walmart for making the right decisions for their online business.

Ori Marom
Guest

What original ideas has Walmart come up with in order to catch up with Amazon? I have seen none.

Walmart is literally a decade behind Amazon. To me, a “me too” online strategy on the part of the world’s largest retailer seems like a huge let down for its patient investors. Walmart is losing its battle with more convenient dollar stores on one front and more sophisticated online competitors on the opposite front.

It is time for this sleeping giant to reinvent the PHYSICAL store or die (believe it or not).

Jon Polin
BrainTrust

Successful retail usually starts with meeting consumer wants and needs. Today that often means e-commerce, so demand is there. Then, given Walmart’s advantages of 1. huge brand, 2. omnipresence of stores near most U.S. consumers, and 3. shelves stocked with tens (or hundreds) of thousands of SKUs, Walmart is strongly positioned to hit on both the demand and supply sides of the equation, with inherent logistics advantages to boot. Smart move to focus heavily on e-commerce.

Bob Amster
BrainTrust

The shift makes a lot of sense. Most of us agree that the U.S. is overstored, that the younger generations like to shop online (and they will inherit the world), that the total of e-commerce plus stores is a zero-sum game and that Walmart has a lot of stores already. Therefore investing in the channel that is, in fact, growing makes a lot of sense. The question is whether or not Walmart.com can differentiate itself sufficiently from the competition to be a relevant outlet for Walmart.

Paula Rosenblum
BrainTrust

I think they don’t have much of a choice. They have tapped out their store-based market and this is probably the best way to appeal to the next generation.

It’s not just necessary to compete with Amazon, but also to compete with smaller footprint store-based retailers.

Tom Redd
Guest

Walmart is conservative about bragging but they have been on this push for years. They have reached a point where it is time to tell the world — vs. just a few of us. Walmart is more than a gorilla, they are more then a discounter or off-pricer. Walmart is a foundational retailer that should be an example for other retailers — no matter their size. They focus on the shopper first and the elements that best serve that shopper, from SCM (remember Walmart’s Telxon RFID purchase and Randy Mott?) to Superstore introductions (food/general merchandise), to adapting — film development, layaway returns, etc.

Walmart was first in many areas of retailing but key is they are a foundational or platform-driven retailer. They drive off a common platform through all channels. Go Walmart, go!

Robert DiPietro
BrainTrust

Walmart can definitely compete in the e-commerce space but they need to optimize their logistics for e-commerce vs. retail. When they want to focus they can move an industry and they have room in e-commerce. The other interesting trend is the amount of Buy Online Pickup In-Store — that’s a statistic that Home Depot is seeing and maybe a trend in general e-commerce. Why is Amazon pushing the Amazon Locker?

The potential payoff is making it easy for customers to spend their money and capturing those dollars. They need to stay ahead of the curve.

Ken Morris
BrainTrust

With its extensive coverage of stores across the country, Walmart has saturated the market and doesn’t have a lot of untapped markets to open new stores. Therefore, e-commerce is their best strategy for incremental growth.

Walmart’s acquisition of Jet.com gives it a stronger e-commerce platform, which is a plus. The other big e-commerce advantage that Walmart has over essentially every other retailer is local inventory. According to Statistic Brain research, 90 percent of the U.S. population lives within 15 minutes of a Walmart. Leveraging the inventory in their local stores for online delivery enables Walmart to reduce transportation costs and make same-day and X-hour delivery more feasible and cost effective.

Walmart has a “prime” opportunity to be a very successful online retailer.

Patricia Vekich Waldron
BrainTrust
Patricia Vekich Waldron
Retail and Marketing Expert; Former IBM Executive
1 year 2 months ago

Shoppers want 24/7 engagement — Walmart is smart to invest in accommodating this demand through digital and in stores.

Mark Price
BrainTrust

I believe that many people are confusing e-commerce with omnichannel marketing. It is true that e-commerce has rarely been valued at more than 1-3 stores’ revenue level. However, the increased interaction of offline with online means that the best retailers must “have game” on mobile, web and in-store to succeed. Increasing the percent of revenue coming from BOPIS (buy online pickup in store) and permitting customers to reassure themselves about the price value positioning of Walmart should prove highly successful.

Lee Peterson
BrainTrust

Well, it’s not working so far! In March, Amazon did 62% of all online sales. Walmart did about 6% (albeit with a whopper increase in $). So, not sure how much more you should throw at e-com, but obviously they pretty much HAVE to or Amazon will run away with 80% of Holiday ’16 online.

There is an old Japanese proverb that says, “the reverse side has a reverse side” — in other words; don’t forget what’s right in front of your face. Let’s just hope that Walmart equals the e-com investment in stores, staff and private label (Amazon can’t do that) going forward. IMO, that’s where the most progress could be made.

Kenneth Leung
BrainTrust

I think Walmart needs to go to e-commerce to grow and also reach the customer base who are not Walmart store shoppers. Rather than continuing to open stores, Walmart needs to invest in keeping the same store sales up and using e-commerce to drive recurring purchase and attract new customers beyond the current base of shoppers that traditionally shop at Walmart stores.

Shep Hyken
BrainTrust

Walmart recognizes the future is in the combination of traditional stores and e-commerce. The trick is the balance of opening new stores and building out the online business. And hopefully they aren’t trying to go head-to-head with Amazon. From what they have been doing, it looks like they aren’t. They are filling some gaps in their own consumer offerings. They also have some good brand loyalty that will go a long way in supporting their new efforts. It will be interesting to see how numbers play out for the different business models. We already see how e-commerce has impacted traditional retail. Will Walmart find a balance? If anyone can, they can.

Kai Clarke
BrainTrust

Yes, doubling down on the fastest growth retailing alternative of e-commerce is something which Walmart should have done years ago, instead of waiting for Jet to do it for them, and then charging Walmart $3 Billion to get it done.

Jenn Markey
Guest
1 year 2 months ago

While Amazon and Google appear to be dipping their toes into the physical retail world, Walmart is busy playing catch-up online, notably with the acquisition of Jet.com and now potentially Flipkart. From an offensive perspective, Walmart’s ability to link the company’s existing global network of more than 11,500 physical ship-to/ship-from supply chain locations to its expanded e-commerce presence could make the difference in this battle of the retail titans. From a defensive perspective, 50 percent of Walmart’s U.S. sales come from grocery and with this category poised to go online along with personal care, Walmart needs to up its e-commerce game to protect revenues and market share.

Alex Robbins
Guest

Maybe Walmart isn’t trying to go head to head with Amazon. Maybe Walmart just wants to capture a small percentage of the market share that Amazon has. Walmart is the dominant player in the brick and mortar space with no real competitor to challenge them. Why not invest in the e-commerce arena? If it doesn’t work and they don’t see the ROI, no big deal.

wpDiscuz
Braintrust
"Walmart is making the right bet by shifting brick-and-mortar investments to e-commerce. "
"Nobody is wanting for more Walmarts. Its shift in focus towards e-commerce is an insurance plan."
"Walmart has a “prime” opportunity to be a very successful online retailer."

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