Walmart’s Latest E-Commerce Moves: What Can it Really Deliver?
The world’s largest brick-and-mortar retailer, Walmart, has eliminated the membership fee on its two-day shipping program ShippingPass – its strongest response yet to the growing dominance of Amazon Prime (which is not estimated to 65 million members worldwide).
According to Marc Lore, CEO of Walmart’s U.S. e-commerce division and founder of Jet.com: “In today’s world of e-commerce, two-day free shipping is table stakes.” He also called the initiative “the first of many moves we will be making to enhance the customer experience and accelerate growth.”
As the battle between Amazon and Walmart looks set to intensify — the undisputed heavyweight of online retailing versus the biggest brick-and-mortar retailer in the world — can Marc Lore and his Jet.com model rocket Walmart.com into a credible, competitive e-commerce position?
A challenging historical context
Amazon’s present dominance is built on continuous investment. Year after year, Amazon has plowed its profits into its infrastructure, creating not just an impressive demand chain (the glitzy stuff we love to talk about, like a powerful product search engine or value-added services like Prime Instant Video), but a powerful supply chain of e-commerce optimized fulfillment centers and a deep network of third-party partners.
And Walmart? Its $13.7 billion in global e-commerce sales (for fiscal year 2016) are not insignificant, but they are simply dwarfed by Amazon’s numbers — $63.71 billion in U.S. e-commerce sales alone. Two decades from its initial forays online, e-commerce remains a small portion of Walmart’s overall sales. Not only does Walmart.com lag far behind Amazon, it fails to keep pace with e-commerce growth as a whole.
The Walmart Marketplace has never been as open or efficient as Amazon. And Walmart has never made comparable investments in distribution centers tailored for e-commerce.
So far, Walmart has failed to beat Amazon on its terms. But could it win on its own terms, turning its vast brick-and-mortar footprint into an unbeatable competitive advantage?
It’s the big e-commerce “what-if?” What if Walmart could leverage its giant inventory, its huge store network, and its vast web of vendor relationships?
The prospect is tantalizing (especially for those with a legacy asset base), but…to date, no one can point to a single real-life exemplar of omnichannel retailing proving to be a superior growth engine than Amazon’s version of e-commerce. So far, omnichannel retailing has demonstrated itself to be a reasonable defense strategy for struggling traditional retailers.
And in a very practical sense, omnichannel tactics impose new challenges that are not easily overcome. To take advantage of its vast store empire, Walmart offers local in-store pickup for orders placed online. For a significant segment of Walmart’s market, waiting up to two weeks for their orders’ arrival at local stores is worth the money saved on shipping; in some parts of the country, in-store pickup can give Walmart a meaningful business edge over Amazon.
But fulfilling online orders from in-store inventory means that stores must serve two masters; their inventory, staff, and store layouts have to meet two demands from two sources — online pickup orders and in-store customers — simultaneously.
The risk is that a natural appetite for growth becomes an unwelcome case of retail cannibalism.
Once online orders absorb 10% – 15% of a store’s volume, it can actually become disruptive to customers’ experience and store economics by leading to drops in on-shelf availability, aisles crowded with staff picking orders, and decreased labor efficiency.
“Unbundling” may be Walmart’s best package for success
To win in e-commerce, Walmart may actually need to achieve two monumental objectives:
1. Prove itself a credible challenger to Amazon’s pace-setting versions of “pure-play” e-commerce, and
2. Repurpose its enormous network of stores and distribution centers to accommodate e-commerce without cannibalizing store sales.
With the acquisition of Jet.com, Walmart has demonstrated serious intent. Under Lore’s leadership, Jet has embraced key elements of both Walmart’s and Amazon’s models (particularly an emphasis on low prices) while adding a new wrinkle: Jet makes economic trade-offs between price, selection, and convenience more transparent, giving consumers opportunities to exchange privileges for a better price. Customers can get lower prices by waiving return privileges, for example, or choosing a less expensive payment option (debit versus credit). In Jet’s Smart Cart, they can enjoy even greater savings by buying the same item in quantity, or choosing an item in a nearby distribution center.
In his current Walmart role, Lore continues to show seriousness. Soon after his arrival, he cleaned house, replacing key members of the Walmart.com management team. The recent free-shipping play proves that Walmart is willing not just to meet, but beat Amazon on an important e-commerce turf.
Yet Walmart’s willingness to further Jet.com’s unbundling model may prove the most effective strategy yet. Amazon, by making its offerings increasingly complex, has exposed itself to disruption at the low end of the market.
By unbundling delivery choices, delivery times, purchasing options and other benefits from the product purchase itself, Jet and potentially Walmart.com can make themselves a destination for people willing to sacrifice convenience or selection for savings. Consider this: when Walmart.com first launched its shipping-to-store program in which customers could eliminate delivery costs if they were willing to wait two to three weeks for in-store shipment, more than half of its orders were picked up at their stores.
What to watch for
Can anyone — even Walmart — catch up to or surpass Amazon at this point?
Given Amazon’s decades of continuous investment and reinvention, perhaps the prospect of truly out-Amazoning Amazon remains dim.
The real question is whether or not there is room for a viable, second place contender. With its recent assault on the low-end — via in-store pickups, free two-day delivery, and unbundled purchasing options — Walmart seems poised to capture the most price-conscious segment of the market, which Amazon may have left exposed in its quest to lock households into an increasingly complex ecosystem of hardware, content, and services.
Walmart and Jet.com are pursuing strategies that will take three to five years to fulfill. Observers can wait and see, but Walmart cannot remain patient. E-commerce continues to grow faster than Walmart itself, and if Walmart is to substantially move the online needle, it needs to show real gains over the next 12 to 14 months.
A year from now, we’ll have some clues as to whether Walmart’s latest e-commerce moves, under Lore’s leadership, show signs of paying off. Then we’ll have to ask new questions. Where does Walmart really fit in the online universe? What’s the twenty-year plan — and does Walmart (or any other online retailer) have enough sand in the hourglass to execute one?
By Keith Anderson is senior VP of strategy & insights at Profitero.
Specialty retailer launches IPO
Women’s apparel retailer J.Jill is returning to the public arena after more than a decade of private ownership.
The retailer on Monday said it has launched an initial public offering of 11.67 million shares. The IPO is expected to have a price range of between $14.00 and $16.00 per share.
J.Jill has been approved to list its common stock on the New York Stock Exchange under the ticker “JILL.”
TowerBrook Capital Partners, a London-based private equity firm, purchased J. Jill in 2015 from Golden Gate Capital.
J.Jill operates more than 270 stores nationwide and also has an e-commerce business.
Big mall owners aim to build traffic via online returns
Macerich, Simon, and Westfield have all signed on for a new service that accepts returns of online purchases at their malls as a way to win a bigger share of Web-shopper’s dollars at their properties.
Santa Monica-based startup Happy Returns staffs “Return Bars” at mall kiosks and concierge stations with “Returnistas” who accept items bought online, satisfy return conditions of individual retailers, package and post them, and furnish refunds on the spot. The majority of returners end up spending those refunds before leaving the mall.
In a survey of online shoppers during six-month pilot test with the online retailer Tradesy, seven out of 10 of them told Happy Returns that they would not have visited the mall except to return their purchases. Asked if they planned to shop, eat, or see a movie while at the mall, 44% responded in the affirmative.
“This means that almost a third of returns result in incremental purchases at malls,” said David Sobie, co-founder and CEO of Happy Returns.
Sobie argued that relieving the pain of online returns is the best way to get heavy Web purchasers back into brick-and mortar. People, he said, hate having to navigate each retailer to meet their return conditions. They hate the “arts and crafts” project of re-packaging their return. Most of all, they hate waiting for the refund.
“Before we launched, we did consumer surveys asking online shoppers where they’d like our return bars to be. Overwhelmingly, shopping malls kept getting mentioned,” Sobie said. “If I buy a pair of jeans online, sure, I can package them up and send them back myself, but that doesn’t solve my problem, which is finding a pair of jeans that fit.”
Happy Returns is focusing on apparel retailers as it looks to expand its list of partners. It’s not uncommon for online apparel retailers to experience return rates of 30% to 40%, maintained Sobie, who worked for online apparel retailers HauteLook and Revolve.
For now, Happy Returns desks are found at just six malls nationwide, but Sobie aims to have 35 to 40 locations up and running in the top 15 metros by the end of 2017.
Macerich offers the service at Santa Monica Place in California, Shops at North Bridge in Chicago, Tysons Corner Center in Virginia, and Fashion Outlets of Chicago. Westfield has installed Happy Returns at its San Francisco Centre and Topanga malls in California. Just one Simon location has it in place — the Galleria in Houston.