With 40 million customers per month, Walmart.com is the 15th largest online shopping site, despite being the world’s largest retailer. Few market watchers are convinced the Bentonville-based retailer’s multi-billion dollar e-commerce investments will move the ranking too much higher.
Walmart’s online traffic equals just 7% of weekly store traffic and only 2% of the sales. The majority of Walmart’s online shoppers also shop in the retailer’s stores, with 80% at least once a month and half once a week, according to analysts with Cleveland Research.
Wal-Mart Stores CEO Doug McMillon has committed to spend $2 billion to fully integrate the retailer into an omnichannel model, where digital shopping experience is singular with the physical shopping trip. But experts say pulling this off is harder than it may seem, even for a retail behemoth like Walmart.
Keith Anderson, vice president of strategy and insights for Profitero, told Talk Business & Politics that Walmart has been known as a fast follower in all of its other success stories over the years. He said when it comes to e-commerce it’s the first movers who will likely win the gold. He said Amazon was the first mover in e-commerce and continues to invest aggressively which has garnered it an accelerated growth over Walmart.com.
Last year Walmart.com sales growth declined from about 17% in the first quarter of 2015 down to 8% in the fourth quarter. Amazon’s sales growth improved from 14% to begin 2015 up to 19.9% at year end. The entire U.S. e-commerce market had 2015 sales growth ranging from 14% to 14.85%, according to Cleveland Research.
Walmart attributed the declining growth rate to challenges in Brazil and China, but Cleveland Research analysts said Amazon is beating Walmart on all metrics – sales growth, share of voice/online spend, shopping experience. The analysts also noted that Walmart.com is “struggling with basic dot com blocking and tackling.”
“Walmart’s guidance of 20-30% growth per year over next 3 years is too optimistic,” Cleveland analysts wrote.
They did say the efforts in grocery curbside pickup and expanding online assortment via more third party vendors are steps in the right direction for Walmart U.S.
THE ELEPHANT THAT IS AMAZON
Anderson said the $2 billion investment Walmart is making in e-commerce sounds big, but it’s roughly 10% of the company’s overall capital expenditure for the year. He said Amazon’s continued retail business investments are much greater than 10% of its cap-ex because it does not have brick and mortar spending like Walmart. He also said Wall Street evaluates Wal-Mart and Amazon differently with respect to their spending, sales performance and profit ratios. Anderson said Walmart faces plenty of challenges as it works to build market share online.
“Amazon has been at this for more than a decade and continues to invest in ancillary devices and products other than retail. But each of these add value to Amazon customers,” Anderson said.
It’s also widely agreed that Amazon has done a good job serving its 54 million Prime members. Michael Levin, co-founder of CIRP, recently told CNN that roughly 46% of U.S. households have at least one Amazon membership. He said the e-tailer grew its membership by 35% last year despite the $99 annual membership fee. CIRP also reports that Prime members spend an average of $1,100 with Amazon, not counting the membership fee. Non-Prime members spend $600 per year at Amazon.
Walmart execs recently shared that online-only shoppers spend a couple of hundred dollars annually. The retailer unveiled its free-shipping package with Shipping Pass last year for roughly half the cost of Amazon Prime subscription rate. The retailer also said its store-only shoppers spend an average of $1,400 a year. Walmart is more interested in increasing those shoppers who use both channels because their average spend was $2,500 last year.
Company execs are likely to pursue several ways to grow online sales which involve building better content on the items sold online, making sure sure all products sold in stores are also offered online, and using more third-parties that network and share product for retailers like Hubba, Worldsync and Salsify. The retailer also said during its recent Year Beginning Meetings that it plans to beta test vendor management of items on sold Walmart.com.
Anderson said the billion-dollar answer for Walmart is to figure how to get into the mindset of the online shopper, of nearly half of the U.S. households are already dialed into Amazon’s ecosphere. He said online grocery is bright spot for Walmart and it’s also where the biggest amount of open space still exists in the retail industry.
Walmart has said it plans to continue rolling out the online grocery pick-up model during 2016 to 1,000 markets. It has also integrating merchant teams in Bentonville and San Bruno while working to improve the consumer check-out process.
“Grocery is an interesting wedge – it’s what allowed Walmart to grow its dominant market share in the 1980s. Nobody has the cold supply chain in place to compete with Walmart, but there are lots of players also trying to figure it out. Walmart needs to play offense here,” Anderson said.
IMPROVING THE CHECK-OUT EXPERIENCE
Carol Spieckerman, CEO of Spieckerman Retail, said Walmart is trying to leverage its physical scale to facilitate growth, particularly in grocery. She said the retailer must set clear expectations from researching a product through the final check-out phase.
“The ability to execute click and collect on a large scale remains Walmart’s major point of differentiation,” she said. “More problematic is getting anywhere near Amazon’s breadth of assortment and ease of check-out. Amazon has raised the bar quite high in terms of shopper expectations which has the effect of amplifying any hiccups shoppers experience with Walmart.com.”
For example she said many of the convenience options and business models Walmart offers may confuse and frustrate. Like when some Walmart items and those from third party sellers aren’t available for in-store pickup, or if the Shipping Pass membership program doesn’t cover all items in a shopper’s Walmart.com cart. She said this increases cart abandonment.
She said the retailer must set clear expectations from researching a product through the final check-out phase if its to start avoiding cart-ditching surprises.