Making Walmart.com 'the Wal-Mart of the Web'

Drug Store News,  June 12, 2000  by Laura Heller

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Internet upstarts such as Amazon.com have stolen much of the thunder from traditional retailers since the inception of e-commerce. While that scenario has changed a bit in the last six months--with click-and-mortar emerging as a more financially sound formula--there is still a lot of work ahead for retailers such as Wal-Mart to claim victory in the e-commerce marketplace. To this end, Wal-Mart has created a separate company for Walmart.com, relocated it to Silicon Valley and brought in a new high-profile chief executive to head up the unit.

Internet retailers are all claiming they want to be the Wal-Mart of the Web, but the question really is, "Can Wal-Mart be the Wal-Mart of the Web?" Absolutely, say analysts, but there are some key factors that need to be addressed regarding Walmart.com before that can truly occur.

Walmart.com currently offers about 600,000 SKUs of product. And while that quantity is impressive, it's also cumbersome and has led to some technical issues that hamper the site's performance. Navigation is awkward, and product information limited. Manufacturers provide the majority of product-related editorial, rather than Wal-Mart generating it in-house, which helps to differentiate a site and make it unique, said Seema Williams of Forrester Research.

The presence of the Wal-Mart greeter on each page helps offset this problem somewhat, as does the site's online photo program and travel services, both of which provide a much-needed, value-added element.

Analysts agree emphatically that Wal-Mart has the ability to build a dominant e-commerce company and succeed fully with the format. Yet Walmart.com has a ways to go if it is to beat Amazon. com for the title of Wal-Mart of the Web.

Visitors to the site numbered approximately 1.5 million vs. Amazon's almost 17 million for the month of April, according to Nielsen NetRatings. And according to Forrester's Williams, Wal-Mart currently ranks far below Amazon in the major categories, including books, music and toys--all categories that Wal-Mart dominates in the brick-and-mortar world.

The retailer must focus on integrating its site with its stores and more aggressively marketing to online shoppers, say analysts. The January re-launch of the site was a step in the right direction. That upgrade introduced better page design and pricing, said Karl Haller, principal consultant with PricewaterhouseCoopers, but the program is clearly a work in progress. Morover, there are some tenets of online retailing that go against the retailer's traditional programs. For example, Haller believes Wal-Mart should manage customer relationships through Walmart.com by building a detailed loyalty program. The retailer has never had such a program, in part because so many people already shop at the chain. In addition, building and maintaining such a program adds cost to the system.

But online retailing is a different matter, say analysts. "That's something that Web retailers on the whole are able to do better than store-based retailers," said Haller. "There's no huge incremental cost to managing that data as the customer is entering it themselves. But it does start to challenge some of [WalMart's] core notions."

Which is one reason why spinning off Walmart.com into its own separate company makes sense. According to Kevin Turner, senior vice president and chief information officer of Wal-Mart stores, the retailer has a long history of successfully developing new formats by separating those divisions and bringing in new people to run them. Turner delivered the keynote address at Retail Systems 2000, held in April in Chicago. He noted that Wal-Mart discount stores, Sam's Clubs and supercenters are "three different formats that we ran independently. We didn't do it with the same people in the same jobs." Breaking out the Internet business is a logical step for the chain, he said.

As a separate Internet business, Walmart.com will be exempt from charging sales tax, except in California, Utah and Arkansas, where the e-retailer has a physical presence. This allows it to be more competitively priced against other pure e-retailers. Higher pricing had been a big criticism of the program and posed a peculiar conundrum for the low-price leader, which suddenly found itself undercut by Amazon.com and eToys during last year's holiday season.

It also allows Wal-Mart to take more risks now that Walmart.com isn't as closely tied to the parent company. "[The need to focus on earnings] held us up and kept us from being as innovative and as creative as we need to be," said Turner. The spin-off also brought in venture capital group Accel Partners. The benefits here go far beyond financial, as Accel gives the retailer access to a talent pool rich with new-economy players. Combined with the relocation to Silicon Valley, the heart of Internet country, the move allows the retailer to better attract the best and brightest in the industry.

"The splitting off of the company is good for attracting talent and for giving a small start-up division the focus it needs to be successful," said Haller. "The risk is allowing it to stray too far from the overall brand proposition that Wal-Mart offers."