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Walmart.com CEO Jeanne Jackson does some remodeling

The CEO of the retailing giant's dot-com counterpart talks to MBA students about the challenge of revamping Wal-Mart's sagging Web presence.

For the past few years, Wal-Mart has been a notably un-notable Internet presence, ranking 47th out of 50 retail sites based on number of visitors, as measured in a recent Media Metrix survey.

But last spring, Wal-Mart spun off a separate Internet company and hired Jeanne Jackson, former CEO of Gap's Banana Republic unit and head of Gap's Internet division, to run it. Jackson is now associated with a retailing giant whose anticipated $200 billion in sales this year will earn it the title of largest company in the United States (replacing General Motors, which has had the honor for nearly 50 years).

On Oct. 18, Jackson spoke with a group of Wharton MBA students about the challenge of revamping Wal-Mart's sagging dot-com.

The stakes are huge, given what Jackson calls "the explosion of Internet usage...You can't be a responsible businessperson today and ignore the fact that over half your customers are using this tool called the Internet. It's going to affect you in some way, so you have to be involved."

But does the typical Wal-Mart customer want to shop online? Isn't it mostly low-income shoppers looking for items like batteries, discount dishwashing liquid and laundry baskets? Jackson says the idea that Wal-Mart attracts only low-income shoppers is a myth. "Approximately 100 million transactions occur in a Wal-Mart store every single week. The reality is that the Wal-Mart demographic looks exactly like the U. S. population demographic."

Noting that middle-class families are also among Wal-Mart's patrons, Jackson quoted a recent Reuters study reporting that about half of those people earning more than $75,000 a year listed Wal-Mart as a favorite store. "Our ability to capture a very substantial market is, we think, pretty astounding."

Jackson acknowledged that only about 30 percent of Wal-Mart customers have Internet access, but pointed out also that 30 percent of this particular customer base translates to 23 million people. In addition, she cited projections that the U. S. Internet-using population will double by 2004, a statistic that will have a profound effect on how people use technology to, for example, access music, software and video.

"When you can get movies on demand on cable, who's going to go to Blockbuster? Technologies will fundamentally change the way goods are delivered to customers."

In the same boat?
So if some of these technologies end up eliminating the middleman, Jackson was asked, won't they eliminate Walmart.com too? Won't you end up buying your music from the record label's site, and for that matter, your Kleenex from the Kleenex site?

"You fundamentally have to believe there's some value in bundling," Jackson responded. "Customers will trade a certain amount of time for efficiency; otherwise, why don't people just drive to the Kleenex factory? Some subset of this will be true on the Internet. It won't be worth your energy to shop around to manufacturers all day to spend $100. And if you, as a retailer, are the one who does the best bundling, then customers will want to buy from you."

Jackson specifically mentioned that Wal-Mart is not merely fattening up its dot-com with an eye toward the stock market, as some major companies have done. "We're not about the short term. We're about making a long-term investment in a technology that's going to reach our customers."

So far, the company's Web site has had mixed reviews. According to a recent BusinessWeek Online article, Wal-Mart last year was unable to guarantee Christmas delivery of goods that were ordered online after Dec. 14. Then in February, a new and expanded site frustrated customers with its slow downloading time and inadequate search engine. Finally, in September, the company simply shut down its online store, rather than keep the older version running, while it did an update.

What's in store
Jackson and her team of 170, however, prefer to focus on the future. To reach existing Wal-Mart customers as well as attract new ones, Jackson intends to focus on ease of use, site reliability and speed. "Studies show that two of the top reasons people aren't parting with their cash on the Net today are about ease and reliability. We want to win the prize for the most usable e-commerce site." Other priority areas for Walmart.com include:

• shipping reliability
• gift features/delivery
• credit processing
• order status/tracking
• gift return options

Jackson considers current measures of Web site success such as eyeballs, page views and traffic of lesser importance. "You will not see any of those measures in a report from Walmart.com. Every single metric we're putting in place is about building a strong foundation with our customer base, so that long term we can build the right kind of house."

The emphasis on customer relationships will also affect Walmart.com's choice of business partners: Jackson said her company will seek "value-added alliances." For example, rather than trying to attract more visitor traffic by linking with a site like Travelocity, Jackson and her colleagues decided that Southwest Airlines offered good value for their customers. The Walmart.com site will provide a link to Southwest so customers can order plane tickets online.

"One thing we can deliver that nobody else can is Wal-Mart prices. Even if someone else can do ease and reliability, they can't do it at Wal-Mart prices."

Another key distinguishing feature, says Jackson, will be the "breadth of assortment." Because it isn't restricted to the standard Wal-Mart 8-foot shelf, the online store can carry products that require too much space to carry in stores. "Walk into a Wal-Mart and how many 61-inch TVs do you see? Not a lot, because they can't fit on the floor. The largest TV is 27 inches. We can expand the assortment online: bedding sets, patio furniture, lawnmowers." Before adding items, though, the new team spent time editing the Web site's existing offerings. "We had silly stuff on our site," Jackson said. "What were we doing spending $9 to ship a 19-cent lip pencil?"

Is the Net a threat?
Won't a successful Walmart.com "cannibalize" the company's brick-and-mortar stores? Not really, says Jackson, who spoke about the considerable "synergy" she says will benefit both sides of the business and increase overall brand loyalty. For example, a store item that only sells about one a month--like a milkshake maker--might be moved to the online site so the store can use that shelf space for a faster-moving item. In addition, customers who research products online might well come into the stores and buy them.

"It's known that customers do this in a lot of categories--books, video, hardware/software, toys, sporting goods." Or, a store that doesn't carry something a customer wants could locate it for him or her on the Web site.

Responding to a question about which company would profit when an order was made online and picked up at the store, Jackson said, "Whether there's a commission--because we created the site that enabled the sale--or whether we get the sale and pay rent to the store, one way or another we'll make money. The entire boat will float by both ends rising."

Jackson listed additional advantages that Walmart.com gets from its connection with the parent business:

• retail expertise to forecast demand and manage inventory
• logistics expertise to create efficient fulfillment
• leverage with suppliers
• lower marketing costs

On that last point, Jackson noted that "we don't have to go out and spend 15 percent of sales on marketing. We've got 100 million people a week walking through the stores." She held up a Wal-Mart circular which she explained goes into 92 million homes 15 times a year, this one containing an ad for Walmart.com. "And we'll get this advertising for free. Amazon.com produced one of these for 10 million households and they had to pay for the whole thing."

Will Walmart.com use the same supply chain or information systems with the brick-and-mortar Wal-Mart? No, Jackson says, "but we'll access Wal-Mart resources whenever we need to get something cheaper, faster, better...You have to understand that Wal-Mart is an incredibly powerful, efficient machine. No company in the world moves a pallet of Windex more efficiently from Procter & Gamble to a customer. It's an absolute rocket shoot--it can take less than a day.

"We need a separate track for fulfillment and information systems, or we risk screwing up the parent business." Walmart.com, Jackson explained, is setting up its own fulfillment facility in Georgia, which will be ready for Christmas 2001. "Our ability, over the long haul, to control costs is our ability to control our own inventory with our own fulfillment centers."

As for her leadership style, Jackson, named one of Business Week's Top 25 Managers of the Year, says she believes in setting expectations high and then serving as a conduit for making sure people's paths are clear. "Get the stuff out of their way so they can do what they need to do to be successful. If process is in their way, get (rid of it). If they need capital to build something to make it happen, get them the capital."

Her first directive from the governing board, she says, was to build a great team. When it comes to talent, "'A' people hire 'A+' people because top people understand that the better your team is the better your results are going to be. The times that I've really gotten burned are when I wanted someone in a job so badly that I settled for a person who wasn't absolutely the best or where I let somebody who wasn't performing well stay in a job for too long."

Jackson gave the audience an introduction to the revamped Walmart.com site. "Our home page in one glance shows everything available in the 'store,' in categories. Very clean, very simple. Customers can sort things by price, brand or most popular items. And the checkout is very clean. But we won't do one-click checkout. To be customer-friendly, we must give them an option to bail. We're also grouping products in 'shops' under topics of interest like health and fitness or 'hot' electronics." Another page view revealed a wide range of color choices in appliances: a green KitchenAid blender, a 13" purple TV.

Jackson asserts that although industry pundits may not find Walmart.com's site particularly fashionable, it is the product of some very conscious choices. "Go look at Target and BlueLight. They have decided to be sexy, we've decided to be fast and reliable. And we're going to take some hits for it. Mark my words, I can name you the four publications--Industry Standard will be at the head of the line--slamming us, saying, 'These guys are idiots, they don't know the technology that's available, they don't have any streaming video,' or this or that.

"But we're not going out there to do leading-edge technology. We're doing things that make the shopping experience easy. My mom isn't going to make a transaction on the Net until it's easy for her to do."

 
To read more articles like this one, visit Knowledge@Wharton.

All materials copyright © 2000 of the Wharton School of the University of Pennsylvania.

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