Wal-Mart Stores, Inc. (NYSE:WMT) sold $466 billion worth of merchandise in its most recent fiscal year. By comparison, only 26 countries produce a GDP higher than Wal-Mart Stores, Inc. (NYSE:WMT) ’s revenue. Despite being such a behemoth in the retail space, Wal-Mart Stores, Inc. (NYSE:WMT) is still behind its competition in some respects – particularly e-commerce. While the company expects to generate $9 billion in online revenue this year, that’s just 2% of its total sales from last year and a far cry from Amazon.com, Inc.’s (NASDAQ:AMZN) $61 billion.
The importance of e-commerce
Last year, e-commerce spending topped more than $1 trillion in business-to-consumer spending. That number represents 21% year-over-year growth, which is expected to continue this year as online spending tops $1.3 trillion. As more consumers turn to online outlets over brick-and-mortar stores, Wal-Mart Stores, Inc. (NYSE:WMT) has the most at stake as the leader in low-cost retailing.
Wal-Mart Stores, Inc. (NYSE:WMT) has been struggling with falling foot traffic for years; an internal memo reported the company saw a 2.6% decrease in traffic during the first half of 2011. With the rapid growth in online retail, the struggles have continued for Wal-Mart stores.
@WalmartLabs
Wal-Mart Labs is the new digital commerce arm of Wal-Mart Stores, Inc. (NYSE:WMT). It works on projects that not only increase Wal-Mart’s e-commerce sales, but also increase foot traffic through improved in-store experiences. The company has been making a lot of progress recently. Here are a few of its biggest innovations.
A revamped search engine that a team of 15 engineers put together in 9 months. The new search engine allows customers to find what they’re really looking for, and has improved sales conversions by 20%. With $9 billion in online sales, if you assume about half of sales come from search, that’s a $1 billion improvement.
Setting up lockers for online customers to come pick up orders at local stores. This is a move Amazon made in 2011 to add convenience to Amazon shoppers that often miss the delivery man. Wal-Mart adds the advantage of no shipping charge and 24-hour access. With 4,000 stores, Wal-Mart Stores, Inc. (NYSE:WMT) has a distinct advantage over Amazon in sheer quantity of locker locations as well as fulfillment speed.
An innovative “Scan & Go” app feature that allows for quicker and easier self-checkout, and indicates a big step toward full mobile checkout. This is similar to the Apple Inc. (NASDAQ:AAPL) Store app that allows users to check out with EasyPay – no personal interaction necessary. Smoother checkout lines, or their removal, will definitely improve the in-store shopping experience, and help Wal-Mart maintain foot traffic levels.
An app feature that allows users to add items to a shopping list via voice or barcode scan, and then directs shoppers to the correct aisles around stores to make the shopping experience easier and faster.
A real-time online price monitor, which automatically updates Wal-Mart’s prices based on its competition’s pricing. This ensures Wal-Mart’s merchandise is priced at the best possible levels to convert sales, of which price is usually a large determining factor when shopping online.
Here’s the rub
Despite all of these fantastic efforts in digital commerce technology, Wal-Mart still faces one huge roadblock. When consumers begin their online shopping the first – and often last – place they look is Amazon.com. Wal-Mart needs to figure out a way to break that habit.
A big-box retailer that’s been able to do surprising well in the online space is Staples, Inc. (NASDAQ:SPLS). Staples is the only brick-and-mortar company whose online sales exceeded Wal-Mart’s. Its focus on business-to-business office supply sales is unlikely to be emulated by Wal-Mart, but perhaps Wal-Mart can copy some other strategies the company uses to improve online sales.
Staples’ strategy boils down to speed and convenience. Speed is very important in the office supply business, because most offices don’t plan their supply purchases. When supplies run low, they determine it’s time to buy more. The convenience of Staples delivery is a great boon for time-strapped businesspersons, who don’t want to carry heavy reams of paper to and from their cars.
But speed and convenience are important to online shoppers no matter what they’re buying. We want it, and we want it now, no matter what it is. And the less we have to do, the better.
Wal-Mart’s thousands of locations can provide impeccably fast shipping times. Just as Staples uses its locations to determine shipping logistics, Wal-Mart does the same. But with so many more locations than its competitors, Wal-Mart can realistically provide same-day shipping for relatively cheap.
In fact, Wal-Mart is reportedly considering a plan to pay in-store shoppers to deliver orders to their neighbors. Alternatively, the company could partner with Google Inc (NASDAQ:GOOG), which recently launched a service called Shopping Express that provides same-day shipping for online store orders. A partnership with Google could also provide Wal-Mart with a better web presence, helping to break the Amazon habit.
Wal-Mart’s advantage
Lucky for Wal-Mart, it can use its huge in-store sales to subsidize online experiments. Any mistakes or setbacks with its digital strategy aren’t likely to drastically hurt its bottom line. That said, it will have to figure out a way to capture a large portion of online shoppers’ mind share before long. It just doesn’t need to rush things. The progress Wal-Mart Labs has made with technological innovations is great; it needs to do a better job of marketing its online shopping benefits to customers.
