Can Wal-Mart repeat retail history on Net?
Although retail giant Wal-Mart has used its marketing might and laser focus to crush competition in towns across America, a repeat performance on the Internet is anything but a foregone conclusion.
Wal-Mart's Internet efforts have largely been muted in comparison to the company's brash brick-and-mortar strategy of charging into towns across America and undercutting local businesses with lower prices and mass merchandizing.
Now, the company that redefined mass retailing is laying the foundation for its biggest online test to date, a revamped e-commerce site just in time for the holidays. Wal-Mart said this week that it will test computer service centers in ten stores, a move designed to draw the Internet-savvy, and has cut an exclusive deal with Book-A-Million to provide reading material to its online shoppers.
More important to its e-commerce development, Wal-Mart's Internet unit, Sam's Club, has quietly posted an online ad for a manager to run an interactive auction site--a move that could indicate plans to greatly expand its presence on the Net.
As e-commerce continues to explode, most brick-and-mortar retailers are realizing they need to jump on board simply to defend their current market share. Research firm Jupiter Communications projects the online commerce market to grow to $40 billion by 2002, but it also estimates that less than 10 percent of online revenues are new sales that would not have occurred if the Internet channel didn't exist.
"[Land-based] retailers have to go onto the Internet to defend against online-only players poaching their customers," Jupiter analyst Michael May said. "The vast majority of dollars that consumers are spending online are coming at the expense of spending the same dollars offline."
A company spokeswoman said Wal-Mart was exploring whether to include auctions at the Sam's Club site, which at present is nothing more than a promotional site for the discount warehouse club. Although she declined to give a launch date for the new venture, she did say that auctions would not be a part of the Wal-Mart site when it relaunches in the fall.
According to the job listing, Wal-Mart is seeking a person with a "good grasp of technology driven merchandising" and the Internet to help "develop an interactive auction site."
With Internet auctions booming, some analysts expect auctions to become a common offering on retail Web sites as merchants try to unload their surplus and returned goods at bargain-basement prices.
More than 450 Sam's Club outlets are located across the United States, selling appliances, electronics, business supplies, tires, batteries, and other goods. Sam's Club, like Costco and Price Club, depends on selling high volumes at low profit margins, while Wal-Mart sells a greater range of products in smaller volumes.
"If the auction model works well for [Sam's Club], they may plan to extend it," said Sue Rothberg, an analyst at Gomez Advisors. "There is a lot less risk by starting with Sam's Club because the model will already exist."
But analysts and others in the booming e-commerce industry are not convinced that Wal-Mart--with about 3,000 stores dotting the United States--can translate its brick-and-mortar success to the Internet. Like many other land-based companies that have ventured online, the chain will face a terrain where offline branding, financial clout, and traditional marketing prowess don't mean automatic victory.
"I don't think it is a given that as Wal-Mart gets more aggressive online that they will be an instant success," said Andrea Williams, an analyst with e*Offerings. "We have yet to see a traditional company figure out an effective online strategy."
Wal-Mart declined to give specifics about how it plans to expand its online properties.
"What we are saying is that we are certainly serious about e-commerce and we look to further enhance our e-commerce presence," Wal-Mart spokesman John Bisio said, adding that the company is still determining what works and what makes sense to market online.
Interestingly, several analysts agreed that it is Wal-Mart's historical success--its potent brick-and-mortar expansion strategy and the management fervor necessary to implement it--that will pose the most difficulties in the digital world.
"It is an extremely physical strategy, to place large stores in underserved areas," said Barry Parr, director of Internet and e-commerce at International Data Corporation. "There is nothing about that strategy that translates onto the online world, and they just don't have a brand that has much resonance on the Internet."
Others have found this out the hard way. Toys "R" Us, another retail Goliath, came online with the goal of dominating the Internet toy players this year--only to see its strategy unravel and a top executive defect because of a perceived lack of commitment to the efforts.
Pointing to such painful experiences, analysts warn that Wal-Mart will have to tread lightly as it works with managers who built its land-based retail outlets into powerhouses but who may not have the same skills, vision, and motivation to succeed online.
"When your financial well-being depends on being successful as a Internet-only business, there is a dedication and focus that differs greatly from those that are just a division in a larger company," Williams said.
Still, analysts agree that Wal-Mart has many powerful weapons and should hardly be dismissed at this early stage. The company has a tremendous purchasing relationship with suppliers and an unrivaled knowledge of distribution, warehousing, and inventory control.
Those advantages put Wal-Mart in a unique position as it sits on the cusp of a full-scale Internet assault.
"We are starting to see this become increasingly important online," Williams said. "As Amazon starts to build up distribution centers, it begins to look like a traditional company."
Underscoring that point, Amazon last year lured Jimmy Wright, a Wal-Mart executive with more than 26 years of experience in logistics management, to oversee the company's distribution centers, product purchasing, and shipping.
Wal-Mart eventually sued Amazon as a steady stream of executives and managers jumped to the online retailer. The suit was settled this year.
Some analysts also said that Wal-Mart has been quietly watching and learning to avoid pitfalls as other land-based retailers came online only to fail miserably. Last year, Wal-Mart became the No. 1 toy retailer, supplanting Toys "R" Us--a company whose online failings have already become legendary in the retail industry.
One particular Wal-Mart weakness may flower into an asset in the near future. Although Wal-Mart shoppers are not typically the same as those who buy online today, that could change with an aggressive Web strategy and pose an opportunity to create a new generation of mass-market consumers.
"The profile of online might not match those who shop at Wal-Mart, but as masses head online in a few years, the fit will be close," said Carrie Ardito, a researcher at Forrester Research.