Wal-Mart Stores, Inc. (WMT), Amazon.com, Inc. (AMZN): Retailers Look to Silicon Valley to Boost Their Online Business

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Retailers, such as Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT), are looking for Silicon Valley start-ups that will help their online businesses grow. Both stores are opening offices in the area to make it easier for them to identify companies that they can partner with and to obtain greater access to talent that can help cultivate innovative new ideas. These retailers are hoping that by revamping their digital presence they can better compete with the likes of e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN).

Amazon dominates online retail

According to a July 2012 article in Time, Amazon.com, Inc. (NASDAQ:AMZN) is the 15th-largest retailer by revenue and by far the largest retailer on the Internet. Raymond James analyst Aaron Kessler estimates that e-commerce accounts for 12% of total retail sales, a figure that is expected to double in ten years. Amazon is gaining market share in Internet retailing, growing three times faster than the rest of its e-commerce competitors.

Wall Street has high expectations for Amazon and its march towards online retail domination. The company’s share price is currently trading at over 300 times its earnings and suggests that there is plenty of room for more growth. Part of the advantage Amazon has over traditional retailers is its ability to grow its business and increase sales by analyzing the data that it collects from customers using the Amazon.com, Inc. (NASDAQ:AMZN) website.

Target and Wal-Mart focus on innovation

Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT) are looking to increase innovation, providing their online and in-store customers with the products and information they’re looking for in faster and more efficient ways. Part of the companies’ interest is focused on the needs of today’s mobile phone shoppers. If they are able to effectively target Internet shoppers and drive e-commerce sales, these traditional retailers can improve in-store sales and compete more effectively with Amazon.com, Inc. (NASDAQ:AMZN).

Wal-Mart Stores, Inc.Target Corporation (NYSE:TGT)’s newly opened Technology Innovation Center in San Francisco is working on developing the company’s mobile app, online search and social media strategies. According to the San Jose Mercury News, VP Nate Swanstrom says the company is “…trying to be out in front of digital innovation.”  On the company’s website there is mention of how the retailer is transforming the shopping experience, taking actions such as partnering with Facebook Inc (NASDAQ:FB) to offer a unique savings program called “Cartwheel.”

The Technology Innovation Center is intended to improve performance across various channels. In addition to faster page loads and better search capabilities on Target.com, the company is currently testing online ordering with in-store pickup and future uses of “augmented reality technology,” which allows customers to locate products in a store using their smartphones.

Target Corporation (NYSE:TGT)’s earnings guidance shows a flat first-quarter 2013 comparable-store sales figure due to softer-than-expected sales in weather-sensitive and seasonal items.

Wal-Mart Stores, Inc. (NYSE:WMT) is ahead of Target Corporation (NYSE:TGT) in its efforts to grow its e-commerce business, and some of its efforts are paying off. According to Wired, a successful new search engine was built by its e-commerce team working near San Francisco, led by an engineer that once worked for eBay. Launched last August, the search engine has converted 20% more searches into sales than before. The company estimates its annual online sales to be $9 billion; an increase of 20% is equivalent to an additional $1 billion in sales.

By 2017, online retail sales are expected to reach $370 billion and much of that growth is attributed to Amazon. As Wal-Mart Stores, Inc. (NYSE:WMT) continues to tinker with its online business, continuing improvements in its e-commerce sales may be a sign that it is stealing away some of Amazon.com, Inc. (NASDAQ:AMZN)’s customers.

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