Walmart Throws Out Tests to See What Sticks

Discussion
Apr 05, 2011
George Anderson

It’s been well documented that Walmart has not had
an easy time of it over the past couple of years. That said, the world’s largest
retailer has announced a whole host of initiatives including rollbacks, small
store concepts, in-store pickup of online orders and expanded assortments to
help it regain its momentum. Now, two separate reports suggest the company
sees the potential to build sales through appliance sales and online grocery.

A piece
in The Wall Street Journal reported the retail store operator
was ready to get into home appliance sales beginning with a test in more than
100 stores in Texas. The pilot project in Walmart locations would sell appliances
manufactured by General Electric.

While Walmart did not offer comment
on the report, the Journal reported
remarks made last month by Bill Simon, head of the company’s U.S. business.

Mr.
Simon said the retailer is “looking at everything including appliances
right now. If it’s something that we believe there is customer demand for and
an opportunity to make some money, we’re going to get into it in a big way.”

Obviously,
a move by Walmart into appliance sales would have major ramifications for
others in the space, including Home Depot, Lowe’s, Sears and others.

A separate
report by Bloomberg News said Walmart is considering
a test of online grocery delivery service in the San Jose, CA market. The project
with the internal name “Project Titan” is still apparently in the
consideration stage with no formal plans to proceed.

“Wal-Mart needs to get
more serious about e-commerce, so that would be interesting,” Matt Nemer, an
analyst at Wells Fargo, told Bloomberg.
“Grocery delivery works in urban markets, and they already do it in the U.K.,
so they have experience.”

According to the news service, Walmart brought
in Richard Ramsden, who headed Asda’s home shopping service in the U.K., to
work with Walmart.com.

The retailer’s online grocery business began selling
some shelf-stable grocery items on the site last year.

“Growing their comparable-store sales by a percent takes a lot of revenue,” Peter
Brown, vice chairman at Kurt Salmon, told the Journal. “But they
have to start driving some growth, and that means exploring a wide range of
initiatives.”

Discussion Questions: What do you think about Walmart’s potential moves into appliances and online grocery? Are there any other steps not yet reported that you think Walmart might pursue to jumpstart  lagging sales?

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24 Comments on "Walmart Throws Out Tests to See What Sticks"


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Dr. Stephen Needel
Guest
10 years 1 month ago

Probably not the best of moves. Appliances require delivery and service infrastructures that are not already part of Walmart. Online grocery raises the price of groceries–seems antithetical to Walmart’s whole modus operandi.

Dick Seesel
Guest
10 years 1 month ago

Appliances make sense in the same way that an expanded assortment of electronics have helped Walmart capture market share from Best Buy and other competitors. But the category requires commitments to floor space and trained customer service. What business does Walmart plan to exit in order to make room for appliances, and what is the volume risk?

Bottom line: Walmart has the sheer number of stores and formats that allows it to experiment with new categories, and online groceries seem like a natural extension of its food business. But here’s a word of caution: Until Walmart can convincingly return to its position as the low price leader–instead of being beaten by Target, Amazon and others–no amount of experimentation will help it recover lost sales momentum. If Walmart plans to sell appliances, it had better plan to beat Sears, Lowe’s and Home Depot on price every day.

Doug Stephens
Guest
Doug Stephens
10 years 1 month ago

The demographic stars are becoming perfectly aligned for online grocery sales and players like Walmart and Amazon know it. By 2030 about 1 in 4 North American consumers will be over 65. Fewer and fewer of them will be willing or perhaps even able to drive to the supermarket and haul their things home. They’ll respond well to online services, provided they’re simple and intuitive to use.

My feeling is that younger consumers too will see online grocery as a no-brainer, provided the service is satisfactory.

Bill Emerson
Guest
Bill Emerson
10 years 1 month ago

Given its size, Walmart faces a daunting task in growing revenue. As someone pointed out recently, a 1% comp store increase means getting every man, woman, and child in America to spend an additional $10 every year. This is not, to say the least, an insignificant challenge.

The good news is that, whatever the business, when Walmart gets into it, it is very shortly the category leader. Electronics and Groceries are just two recent examples. The appliance category, with its higher average ticket, makes it a natural choice and has the potential to move the revenue needle quickly.

Ryan Mathews
Guest
10 years 1 month ago

Appliances seem a safer bet than online groceries.

The issue here is whether goods from a single supplier will seem like a competitive enough offer in this space. There’s also the question of delivery and/or take away–popular features offered by most current retailers.

And, appliances take up a good bit of floor space so one wonders what goes out so they can go in.

Paula Rosenblum
Guest
10 years 1 month ago

I agree with Richard’s response. Appliances require an infrastructure Walmart really doesn’t have. And speaking from some experience, the home delivery business is a bear. Home delivery begets scratch and dent sales (because things don’t always travel well) and all of that is a distraction.

And a web-based grocery business remains an elusive challenge.

I hate to be a Negative Nancy here, but I think Walmart is IN the businesses it’s going to be in. Comp store sales may well have peaked as its market is essentially saturated. If I was a shareholder, I’d probably prefer the company take its existing model to even more countries and see if it sticks.

Charles P. Walsh
Guest
Charles P. Walsh
10 years 1 month ago
What is clear is that Walmart is reinvigorating their approach to the retail marketplace and seeking to test a number of ways to increase their growth in both existing and developing businesses. Their distribution (food and GM) is second to none, their store locations and operational capacity places them in the best position to take advantage of a developing and proven business segment, online grocery ordering and home delivery. Peapod and others have proven the concept can work, and with Walmart’s logistics infrastructure, they will be able to leverage the cost of implementation better than most. Walmart’s venture into selling large appliances has been tried before. I recall in the early years of 2000’s that an in-store display of appliances with kiosk ordering was tested in a number of locations. The test lasted about a year or so and was obviously not successful at the time. However, times change and the time may be right to try it again, though I personally don’t believe that Walmart Stores are best suited for this type of selling… Read more »
Fabien Tiburce
Guest
Fabien Tiburce
10 years 1 month ago

Walmart and Google have the same problem. They are the 800 pound gorilla in their respective business. Unfortunately, when you are #1 and command an overwhelming market share, there is nowhere to go but down. Like Google, Walmart is trying to grow by throwing initiatives at the wall to see what sticks. New formats, new categories, new channels. I find Walmart’s resolve commendable; this is not a company that’s going down without a fight. On the other hand, these disparate initiatives clearly lack a common theme which indicates Walmart actually doesn’t know how it will grow from here. That, should be a concern, at least to the Walmart shareholders. I am bullish on Walmart. It is a great brand and a textbook model of execution. The short to medium path ahead could be rocky as Walmart tries, and fails, on at least some of its initiatives.

Paul R. Schottmiller
Guest
Paul R. Schottmiller
10 years 1 month ago

The pace of new initiatives (smaller formats, Fed Ex, Pick-up Today, acquisitions, etc.) certainly shows that they are serious about looking forward and adapting their retail models to fit the evolving consumer (tech, demographics, spending).

There is a question as to whether they can finally crack-the-code on grocery delivery profitability and/or overcome the inventory and expertise challenges of selling appliances. However, with evolving multichannel models it is too early to simply dismiss these efforts based on past challenges to traditional models.

Eithel Simpson
Guest
Eithel Simpson
10 years 1 month ago
In my opinion and experience in a rural area in Oklahoma, Walmart has neglected the needs of the consumer. Therefore, I am certain that they need to concentrate more on customer service and customer relations than on expanding their product lines. For a project in a Consumer Behavior class that I taught at a regional university, the students collected data about whether customer were satisfied with the area’s new super Walmart. The findings were quite revealing about their perceptions of this new venture. Most were unhappy that the inventory levels were always low or out and were very slow in replacing the “out” merchandise. As a result, these customers were switching their shopping habits to Family Dollar, Dollar General, and Walgreens; the smaller venues that in their mind, always have merchandise stocked on their shelves. Even though the prices might be a bit higher than Walmart, they were will to pay for the convenience. Thus, I’m inclined to tell Walmart, to revisit their policies and get more acquainted with their customers rather than expanding their… Read more »
Eliott Olson
Guest
Eliott Olson
10 years 1 month ago

A company built by entrepreneurs who hired followers. At their next annual meeting they should bring in the Yale Glee Club to sing the Wiffenpoof song:

To the tables down at Mory’s
To the place where Louie dwells
To the dear old Temple bar we love so well
Sing the Whiffenpoofs assembled with their glasses raised on high
And the magic of their singing casts its spell

Yes, the magic of their singing of the songs we love so well
“Shall I Wasting” and “Mavourneen” and the rest
We will serenade our Louie while life and voice shall last
Then we’ll pass and be forgotten with the rest

We’re poor little lambs who have lost our way
Baa, baa, baa
We’re little black sheep who have gone astray
Baa, baa, baa

Gentleman songsters off on a spree
Doomed from here to eternity
Lord have mercy on such as we
Baa, baa, baa

Liz Crawford
Guest
10 years 1 month ago

I am bullish on Walmart’s appliance initiative.

However, the foray into online grocery is another matter. I am not convinced that Walmart is poised to succeed in e-Grocery. The success factors are precisely where Walmart has been weak historically: upscale shoppers and urbanites.

Webvan stumbled because it miscalculated its business model. Below a certain volume of shoppers, a surcharge for delivery must be levied against every sale. Therefore, the customers who are most interested in this service must be in a position where their time is more valuable than the money for delivery. I am not convinced that this is the typical Walmart shopper.

Second, urbanization is another success factor for online grocery delivery. The reason is that population density improves the margins of the business. It is more profitable to deliver several packages to a single street or condo complex than it is to drive all over creation to drop off one or two.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 1 month ago
I think Walmart needs to focus on their core competency, which is being the undisputed price leader in their core categories. When the recession hit in ’08, there was a lot of talk about consumers trading down to Walmart to save money, and a lot of speculation about whether they could hold on to those customers when the economy recovered. I think we know the answer to that. During the recession, Walmart also had their customers trade down, to dollar stores and other off-price outlets. The question perhaps we should have been asking was whether Walmart would recover those customers when the economy improved, because that’s the competition that Walmart now has to respond to, in addition to incursions by the likes of Target and Amazon. Walmart’s entire strategy historically has been based on using it’s heft to push back on the supply chain and drive costs, and thus prices, lower. They have been extremely skillful at it, especially in their efforts to leverage raw material costs. Their mission now is the same as it’s… Read more »
Phil Rubin
Guest
10 years 1 month ago

WMT is right to look at opportunities in this space. GE is a blue-chip appliance manufacturer and, like WMT, a big company that needs a retail partner like WMT to make impact for its business, so the companies are a natural match.

It’s likewise strategically sound to pursue online groceries, especially as WMT increases its presence in urban areas. It’s supply chain and logistics, and of course its size, give it great potential here.

Bullish on WMT as it pursues testing these ways to grow its business.

Christopher P. Ramey
Guest
10 years 1 month ago

This is about logistics. Appliances and other big ticket items, as well as food, makes sense. Mastering home delivery opens many doors for Walmart and allows for a substantial revenue growth spurt.

This is no different from what every other retailer need to be considering: products and systems to leverage your current customers.

Jonathan Marek
Guest
10 years 1 month ago

The great thing about testing is that Walmart doesn’t need to know the answer in advance. They can let the consumer tell them what she wants and what she doesn’t, in a low risk environment. It is great to see the world’s largest retailer using testing to unlock the path to even more growth.

Warren Thayer
Guest
10 years 1 month ago

I’m with Liz Crawford and Ryan Matthews on this one. Anecdotally, re: appliances and Walmart. When I was buying a large new TV a few years back, I went to a Sears and was on the cusp of buying, but told the sales guy I was going to check prices at Walmart first. He said that was a great idea, but that I should also check picture quality of the brands offered by Walmart vs. Sears (or any other retailer). I checked, and came back and bought at Sears. The Sears clerk said “it happens all the time.” I’ve been a little leery of buying big-ticket items at Walmart ever since.

Gary Chatman
Guest
10 years 1 month ago

Leveraging in-place infrastructure in e-commerce, brick and mortar that delivers convenience and time savings to customers is a great start.

Retailers offering same-day pickup from online sales are growing, consumers are expecting it. A large percentage of consumers use online media to shop locally. The US Dept of commerce says the average business draws 95% of its customers from within a ten miles radius and 75% are from within five mile of their location. The added benefit of home delivery makes a very compelling reason to shop. Small business owners will also benefit from an e-commerce platform offering “instant gratification.”

Gene Detroyer
Guest
10 years 1 month ago
Oh, how we continue to damn Walmart. Some of us are even saying they have run their course. In the 4th quarter of 2010 their same store sales were down 1.1%. The response was deafening. “Walmart is done!” “They have lost their edge.” “They cut too many SKUs.” “They have to cut their prices.” But, nobody talked about their profits being up 21%. Do those comments mean that Walmart could have cut their profits by 21% to increase their sales by 1.1%? There is nobody on this list who would suggest something so foolish. So why not cut your sales by 1.1% to increase your profits by 21%? The results are not surprising. Retailers continue to lose money on that need to get the extra sales dollar. How much money do department stores and specialty retailers lose on that last 5% of sales that they “feature” for 70% off? With regard today’s Walmart question…. I am not sure appliances provide the necessary turns for a retailer like Walmart. However, if they have determined that they… Read more »
Carol Spieckerman
Guest
10 years 1 month ago

To me, Walmart’s online and appliance opportunism are related. More and more appliance decisions are made online, even as purchases occur predominantly in the store. Therefore, store-level expertise won’t be a critical success factor for the foray and site-to-store provides a logical support system.

On a related note: Not so long ago, Walmart’s stores of the community promised to lead the localization and store-specific assortment charge. Flash forward through much distraction and retraction and others such as Macy’s (My Macy’s localization), J.C. Penney (Growth Brands Division begets Foundry Big and Tall bricks and even more clicks), and even Best Buy (category stretches a la fitness equipment) have managed to own much of the specialization and category opportunism conversation. For Walmart, this isn’t a risky scheme, it’s a competitive mandate.

Mark Burr
Guest
10 years 1 month ago

Its quite surprising that Walmart has not moved into appliances already. As for the comments about infrastructure necessary, Walmart can have delivery and set up locally contracted in a heartbeat. They can also move into to rental trucks at the stores for do it yourself pick up and delivery that would allow them to expand in many other larger home products and some they already carry.

The online move to groceries is a great tie in to their smaller store locations in planning as pick up locations.

I give both of these options 18-24 months and the entire landscape of these two options are likely to have begun to transform yet another channel.

These ideas are not used cars, banking, wedding dresses, etc. These are realities. I’d almost take them as an announcement not just as a possibility. These are real and viable opportunities for Walmart.

Bill Hanifin
Guest
10 years 1 month ago

The sale of appliances by Walmart makes sense to me as it serves their existing customer base and is compatible with competing product lines as offered by Sears, Best Buy, Home Depot and others.

The success of marketing groceries online has more to do with consumer grocery buying habits than whether or not it can be well executed. I have friends in the UK who routinely buy groceries online and it is a part of life in that country. In the US, online grocery shopping has so-far been in about the same category as public transportation and the metric system, i.e. not in our DNA.

The two initiatives are unrelated and I would hope that Walmart would be selective in how they move forward with each one.

Ed Dennis
Guest
Ed Dennis
10 years 1 month ago

If Walmart wants to find the keys to success they only have to look in the rear view mirror. What Walmart USED TO DO is not what got them in trouble. What got them into trouble was raising prices and not addressing in-store out-of-stocks. Getting back to basics (go read Sam Walton 101) can cure 95% of Walmart’s problems. Firing every MBA in their system will take care of the other 5%.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 29 days ago

Yes, there are other steps. Here in the Sacramento area (Roseville) Walmart is testing a live pet department, taking a cue from the big box pet barns. For those who remember the old days when you could buy parakeets and canaries along the back walls of Walgreens’ and Woolworth’s stores, it’s very much like that only on steroids. How much is that doggie in the window? Discounted with a gift card–free spaying or neutering. Do bunnies bite? Trained personnel is essential. Various pets–mostly of the they-all-look-alike variety such as fish and reptiles–are even sold online and available for in-store pick-up. Part of that new program from Walmart.

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