Walmart E-commerce Strategy Update: Still Can Not Beat Amazon
Beat Amazon? All of a sudden, Walmart has gotten serious about this e-commerce competition. Why? It’s all about the future and the current trends. And the Walmart e-commerce strategy update.
For decades, the dominant view of strategy was based on Michael Porter’s ideas about competitive advantage. In essence, he argued that the key to long-term success was to dominate the value chain by maximizing bargaining power among suppliers, customers, new market entrants, and substitute goods.
Yet digital technology blew apart old assumptions. As technology cycles began to outpace planning cycles, traditional firms were often outfoxed by smaller competitors that were faster and more agile. Risk-averse corporate cultures needed to learn how to “fail fast” or simply couldn’t compete.
Men like Alfred Sloan, Peter Drucker and, eventually, Michael Porter came up with important ideas about how to run a business more efficiently and create a sustainable competitive advantage. Both Amazon and Walmart are looking for these e-commerce secrets.
According to Nielsen, e-commerce will gain more ground than any other segment of the retail industry by 2017, with a compound annual growth rate of 11% each year. Supercenters come in second, with their growth rate projected at only about half that of web shopping.
When you consider sales for consumer packaged goods online — food, groceries, everyday items — are more like high double digits, almost 20%, you can see Walmart’s concern.
Both chains dominate their areas of expertise. Once just a bookseller, Amazon is now the biggest online store in the world with $61 billion in 2012 revenue. Walmart is the world’s largest retailer of any kind with $469 billion 2012 revenues (estimated $7-8 coming from E-commerce in 2012).
Walmart is doing all it can to catch up with Amazon online. But lots of obstacles exist.
We don’t think Walmart can catch Amazon for these 6 reasons. And in most cases Amazon is getting further ahead:
Amazon’s singular focus
Amazon is an e-commerce company in everything they do. They have developed all their expertise in full support of e-commerce. In fact, they now do e-commerce for many other businesses. They are not hamstrung by an enormous brick and mortar business like Walmart.
No internal competition like what Walmart faces day-in-day-out. Walmart doesn’t discuss this subject and probably would deny it exists. But it does. No question there. And it yields a gigantic silent advantage for Amazon.
Walmart E-commerce logistics
Logistics is what made Walmart great. But delivery is a different matter. Walmart is dabbling in same-day delivery and even going a step further than Amazon by using stores as fulfillment centers and if expanded, could turn 4,000 stores into bases for same-day delivery. Walmart is following further behind.
Two-thirds of the U.S. population lives within 5 miles of a Walmart, and trucks crisscrossing the country arrive daily to replenish the stores, which can greatly reduce shipping costs. However, the process comes with serious limitations, particularly since it diverts workers’ attention away from ensuring stores are clean and properly stocked.
But it is still a possible big advantage to Walmart if they could think like one business instead of two. Walmart’s culture is holding them back.
They are also attempting to crowdsource package drop-off among customers.
But Amazon has non-perishable products like diapers that its infrastructure allows shoppers to set up regularly scheduled deliveries, a service popular on Diapers.com. A fantastic feature. And third party vendors are expanding the product line
And Amazon is already a step ahead with its Amazon Fresh same-day delivery, currently available in the Seattle area but soon headed for California. Amazon is building out this infrastructure for perishables.
Groceries will be the battleground very soon coming to the forefront. This will further eat into the solid Walmart business. And it is getting closer.
But what is Walmart doing? They are creating a vast new logistics system that includes building new warehouses for Web orders. Hedging their bets so to speak. More illustration of the internal competition in our mind.
As Walmart’s online orders have grown, it has turned to makeshift spaces carved out of store-serving distribution centers and third-party warehouse operators to help handle the load. The extra layer added to its costs.
Walmart’s online shipping can cost $5 to $7 per parcel, while Amazon averages $3 to $4 per parcel, analysts say—a big difference considering some of Walmart’s popular purchases are low-cost items like $10 packs of underwear. This gap is closing but not fast enough.
Walmart e-commerce strategy … agile innovation
Amazon has existed in the e-commerce technology world since its inception. They think like a technology company and agile innovators. They are not afraid to try new things and they can get things done quickly, thanks to the culture their CEO Bezos has instilled.
The big-box behemoth may not be a start-up, but it does try to think like one with its Walmart Labs division. Those groups are developing Pangaea, a global technology platform with scan and go apps that let shoppers buy in-store via a smartphone and online operations in growing markets outside the U.S. such as Brazil and China.
They’re doing more new things, but they are slowed down by their legacy business and its mindset. But the cultural mindset is changing.
They are as trying out lockers, one of Amazon’s hallmarks, allowing shoppers to order items online and pick them up in stores — crucial for the Walmart demographic, a quarter of whom reportedly do not use debit or credit cards or even have a bank account. But why would an on-line shopper want to deal with the congestion of a visit to a Walmart megastore? Not us.
Walmart ecommerce strategy customer set differences
Walmart demographics, a quarter of whom reportedly do not use debit or credit cards or even have a bank account, represent a big difference with their key e-commerce competitor.
While we have not found any statistics on Amazon customer set, we speculate a much larger representation of higher-end incomes among their shoppers.
A big advantage to Amazon we believe, both in consumer disposable income, but also inability to operate and shop on-line. And take advantage of frequent new technology features. No dent on this front by Walmart.
Existing in-store strategies
Walmart has an enormous and growing network of brick and mortar outlets — 4,000 in the U.S. and counting. More internationally. With those stores goes an equally enormous product offering. A blessing but an equal curse.
They are long ways on being able to put all the products online where they can be easily found. This has been achieved.
At some stage, these stores and product lines may be an advantage for Walmart. But those are technology constrained goals that are, for now, out of reach. And that is not even considering how Walmart might solve its internal competition problems.
Can you imagine the Wal-Mart cash cow making compromises in terms of revenue and profit to help their e-commerce business? Not happening.
Walmart e-commerce strategy … e-commerce technology lead
Like Amazon, Walmart has a massive product offering. This isn’t a new problem for either of them, but as the race to fulfill orders guarantees quick turnaround times and more convenience after placing the order, Walmart must control everything it can before the order is placed to ensure it’s actually placed through them.
In this case, that means making sure customers can find what they’re looking for, quickly and easily. Or, in the case that customers don’t know exactly what that is, helping them figure it out with a fairly high degree of accuracy. At least they are keeping up here,
Walmart must transform itself into an invisible personal shopper to help customers navigate its vast inventory.
What exactly would that take? A lot. But Walmart’s two most crucial priorities will be helping online customers navigate its extensive product list easily and quickly and streamlining online and offline operations to create a turnkey overall experience. Not prioritizing this at all.
To act as an invisible personal shopper, Walmart must master what they do with this powerful combination of content and data—and when they do it. The goal is to use it in real-time, as customers are browsing their online store. More work to do here for sure
Walmart is trying to improve links between its store inventory, website, and mobile phone apps so that more customers can order online and pick up their purchases at stores, which half of the Web customers do already.
Walmart is trying Web-based shopping tactics, like its Pay With Cash program for Walmart customers who don’t have credit cards. The new program allows them to reserve products online and pay cash at their nearest store.
The bottom line
At the end of the day, Walmart’s rise to online dominance really just revolves around turning an otherwise complicated shopping experience into one that feels quaint and easy. They are there yet.
It accomplishes this by setting up a strong behind-the-scenes infrastructure that puts the customer experience at the forefront. Just like in their store, even better.
And isn’t that what their strategy update is all about—giving the customer what they want where and when they want it?
Unfortunately, it is much easier said than done, especiall now more than ever.
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Mike Schoultz is a digital marketing and customer service expert. With 48 years of business experience, he consults on and writes about topics to help improve the performance of small business. Find him on Facebook, Twitter, Digital Spark Marketing, and LinkedIn.
