Since Wal-Mart Stores, Inc. (NYSE:WMT) opened its first store in 1962, the retail giant built an empire that is unmatched in size and revenue. In 2012, Wal-Mart Stores, Inc. (NYSE:WMT) hauled in a whopping $443.8 billion in sales. So naturally, in 2000 when Wal-Mart Stores, Inc. (NYSE:WMT) decided to jump into e-commerce, the retailer thought it would rule the market. There was just one problem: Amazon.com, Inc. (NASDAQ:AMZN)
Wal-Mart Stores, Inc. (NYSE:WMT) learned the hard way that brick and mortar sales don’t equate to online sales and has continually played catch-up to Amazon.com, Inc. (NASDAQ:AMZN). Now, Wal-Mart Stores, Inc. (NYSE:WMT) is again increasing efforts to compete with Amazon.com, Inc. (NASDAQ:AMZN), this time by opening new warehouses specifically for online products along with a “vast new logistics system.” In addition, Wal-Mart Stores, Inc. (NYSE:WMT) said it would use workers in its existing stores to package and ship products to online customers.
Bad idea. Here’s why.
A wise marketing professor I once had said that when it comes to market penetration, “it is better to be first than it is to be better.” These words highlight the fact that the first player in an industry has an immeasurable advantage over later competitors. Amazon.com, Inc. (NASDAQ:AMZN) was founded in 1994, six years before Wal-Mart sold a single product online. By the time Wal-Mart got in the game, Amazon.com, Inc. (NASDAQ:AMZN) had a choke hold on the market.
Not much has changed. Last year, Amazon.com, Inc. (NASDAQ:AMZN)’s web sales were at $61 billion compared to Wal-Mart’s $7.7 billion. On top of that, Amazon’s sales have been growing annually by an average of 33% over the past five years. Wal-Mart is riding a moped trying to catch Dale Earnhardt Jr. in his stock car – something that’s not going to happen.
Show me the money
I think Wal-Mart is fighting a losing battle. Yes, the retailer could gain a bit of ground in coming years, but can it gain enough to warrant the amount of capital being poured into the segment? A vast new logistics system? New warehouses? More employees? I don’t think Wal-Mart is playing to its strengths.
Wal-Mart was built on a brick and mortar foundation, and that’s where its focus should remain. I know. Online sales are growing! The Internet is the future of retail! I’ve heard it all. But even today, physical world sales account $9.50 of every $10.00 in the US.