I was an early online shopper. I didn’t need any convincing that perusing a wide array of offerings on my schedule and in the comfort of my home was not only usually more pleasant than shopping with the masses in most stores, but also a time saver. I know I’m in good company.
I’ve read several articles recently about Wal-Mart Stores, Inc. (NYSE:WMT)’s e-commerce push. Wal-Mart Stores, Inc. (NYSE:WMT) doesn’t break out its online sales, but said its goal is to do $9 billion of its 2013 revenues on the internet. That’s less than 2% of its total sales, which were $469 billion in fiscal 2013. Most articles cite the considerable potential, given e-commerce is projected to grow faster than any other retail segment. (Nielsen predicts e-commerce will grow at an 11% CAGR through 2017, while supercenters – which includes Wal-Mart – will have growth rates only about half that.) Some claim Amazon.com, Inc. (NASDAQ:AMZN) needs to watch out. I agree about the potential. But I don’t think Wal-Mart Stores, Inc. (NYSE:WMT) presents much of a threat to Amazon.com, Inc. (NASDAQ:AMZN).
2 main groups comprise the potential Wal-Mart online shoppers
1. Those who regularly shop in-store at Wal-Mart
Wal-Mart could have some success converting some of its existing in-store shoppers to online shoppers. This should enable it to cut some costs. However, cost cutting only goes so far, especially for low-margin businesses (Wal-Mart’s profit margin was 3.6% in fiscal 2013). For long-term success, the focus needs to be on revenue growth. Wal-Mart Stores, Inc. (NYSE:WMT) would need these existing customers to spend more online than they do in-store.
Wal-Mart plans to focus on online food sales, a good plan because packaged foods and other consumables (personal care items, etc.) generally have higher margins. Additionally, while overall e-commerce sales are growing at 11% a year, sales of consumables are growing at an almost 20% rate, per Nielsen.
But there’s a big issue. Online shopping has been around for a long time. So, there are likely good reasons why non-online shoppers or infrequent online shoppers have not embraced online shopping. Wal-Mart can spiff up its site and offer good deals to try to entice people to its site, but its efforts will be futile for those who:
Consider in-store shopping enjoyable;
Consider shopping a social activity;
Don’t trust their data online;
Don’t use credit or debit cards or have bank accounts (reportedly, about 25% of Wal-Mart’s core shoppers);
Aren’t comfortable using computers or don’t have one;
Have high instant gratification needs. (Wal-Mart Stores, Inc. (NYSE:WMT) has same-day delivery in certain areas, but to some, this is still not as good as ‘get in car to get it NOW.’)
The ‘order online and pickup at lockers’ (within stores) concept, which is in the testing phase, could appeal to some in the ‘don’t trust data online,’ ‘don’t use cards or checks,’ and/or ‘want it now!’ categories.
2. Those who don’t regularly shop at Wal-Mart, but shop online
These folks don’t need convincing to let their fingers do the shopping. However, the big issue here: This group is already heavily in the Amazon camp. I don’t see Wal-Mart winning over many in this group for these reasons:
(i) Selection
Amazon’s biggest plus is its huge selection. It’s not just the online shopping many like; it’s as much the one-stop aspect.
I checked Wal-Mart’s site for several items I regularly buy. No luck. One item is Solgar brand Vitamin C. Solgar doesn’t have fillers and other additives that most vitamin brands do. Wal-Mart had one acceptable (to me) brand of Vitamin C – and only carried it in a powder. Meanwhile, Amazon.com, Inc. (NASDAQ:AMZN)’s offerings are immense.
Wal-Mart Stores, Inc. (NYSE:WMT) does not carry several items I buy regularly. Amazon.com, Inc. (NASDAQ:AMZN) carries just about everything. So, why order from two (or three, or four) places? That means getting on two, three, or four sites, and also receiving two, three, or four packages. A key goal for many online shoppers is to simplify.
(ii) Useful Assistance
We could use many categories, but let’s use books since they’re at Amazon’s core. The key to Amazon’s popularity is not just its selection, but also how easy it is to find book recommendations because of all the reviews and Amazon.com, Inc. (NASDAQ:AMZN)’s algorithms. Its “New For You” and “Customers Who Bought This Item Also Bought” algorithms work well, which isn’t a surprise given the company’s immense amount of data. It’s like having your own personal assistant.
I opened this article with a reference to High Fidelity, a 90s book. Curious? Amazon’s site would let you see that 559 readers reviewed it, with the average rating being 4.3 (out of 5) stars. Wal-Mart’s site has a publisher’s few sentence description of books, with few to no reviews.
I could use examples for other categories – sports gear, house stuff, etc. The fact that Amazon.com, Inc. (NASDAQ:AMZN) has such a massive online head start means its helpful algorithms are unlikely to be beatable for a while.
(iii) The ‘Don’t Fix What’s Not Broken’ Factor
Amazon is dependable. If good customer service were the norm, people would not rave as they do about Apple Inc. (NASDAQ:AAPL) stores, for instance. I’m not saying anything negative about Wal-Mart Stores, Inc. (NYSE:WMT), as I have no experience dealing with Wal-Mart. But it seems foolish to mess with what’s not broken.
And price?
I didn’t mention price because it’s an obvious factor. I checked several items. In most cases, Amazon’s prices were better. In the few cases where Wal-Mart’s product prices were a bit lower, they were mostly lower only if you went to pick up the item at the store. The savings vs. Amazon’s delivery, for those who are Prime members, was very small.
Example:
Model: Black & Decker 6.5-amp 18″ Electric Mower
Amazon:
Price: $148.99 (free shipping for Prime members)
Wal-Mart:
Price: $143.00, but out of stock online. The site notes this model is “not available” at my local stores.
IF Wal-Mart had this model available, I could drive to my local store (3.2 miles away), and spend about 40+ minutes (drive/park/wait in line, load/unload a fairly heavy item) to save $5.99. That’s not worth it to me.
Foolish bottom line
Amazon may lose an occasional online big-ticket order to Wal-Mart Stores, Inc. (NYSE:WMT) and fail to put some relatively new online shoppers in its camp. However, Amazon.com, Inc. (NASDAQ:AMZN) doesn’t need to fear that many of its existing customers are going to flock to Wal-Mart’s (or other competitor’s) site, in my opinion.
As to Wal-Mart’s online efforts, I’d guess they’ll primarily convert some current in-store shoppers into occasion online shoppers. Given its huge number of customers, even a small conversion could be quite successful if these customers bought more online than they would have in-store.
The article Why Wal-Mart’s e-Commerce Push Won’t Budge Amazon’s Core Customers originally appeared on Fool.com and is written by BA McKenna.
BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. BA is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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