That has put Earth's largest retailer and Earth's largest online
retailer on a collision course for what could be the retail battle
of the decade.
While Walmart may be 10 times Amazon's size in overall sales, it
has only about a tenth as much in online sales, making Walmart a
distant also-ran online, even in staples like shampoo and diapers.
Amazon's acquisition last year of Quidsi and its Diapers.com and
Soap.com sites made those core Walmart categories one of the
e-commerce giant's biggest strategic priorities.
While 1% or less of the sales of packaged-goods giants such as
Procter & Gamble Co. or Unilever come via e-commerce today,
that number is growing fast in some key categories. In the past
year, Amazon has gone from a top-10 to a top-five U.S. retail
account for P&G's Pampers, according to people familiar with
the matter. And according to some industry estimates, diaper sales
in e-commerce are higher than those in supermarkets (though not
drug stores, supercenters or clubs).
Beyond CPG, sales in electronics and general merchandise (EGM)
have gone from 43% of Amazon global sales only two years ago to 59%
last quarter, and an even bigger 61% in North America.
Walmart would love Amazon's top-line growth, but isn't about to
settle for its profits. Building staff and infrastructure to
support the growing general-merchandise business and rising
media-content costs produced disappointing third-quarter profits
and projections for a possible loss in the all-important fourth
quarter at Amazon. That has some Walmart suppliers believing that
while Amazon presents a growing threat, Walmart is better
positioned to grow profitably in e-commerce.
Key to Walmart's emerging e-commerce strategy is integrating
store and online marketing like never before. That's meant removing
barriers between Bentonville and the Brisbane, Calif.-based
Walmart.com. Joel Anderson*, a veteran of
store operations, took over in August as president of Walmart.com
U.S., as the top three executives at or overseeing Walmart.com have
left or soon will leave.
There are also changing incentives. As of the new fiscal year
beginning Feb. 1, Walmart's store managers and employees will get
credit for online sales from their territory, just like sales in
the store. That will give them more reason to promote Walmart.com,
the new iPad app, My Local Walmart Facebook app, and its
soon-to-be-released refurbished iPhone app to the 140 million
weekly in-store shoppers.
Walmart is also trying to use its 3,800 stores and 150
distribution centers as a logistical and marketing advantage over
Amazon. Last month it rolled out "Home Free" delivery, with free
shipping on orders over $45 from its stores -- sans a $79
membership fee like Amazon Prime. And Mr. Anderson said in October
that Walmart plans "next- day delivery at a very economical price"
using its stores as distribution centers and aimed largely at urban
Walmart is also experimenting with everything from home grocery
delivery in San Jose to a a pilot using the U.S. Postal Service to
deliver items shipped from a rural store in Nevada. And the planned
expansion of other smaller formats, both supermarket-size markets
and smaller Walmart Express stores now in test , could extend
Walmart's already massive logistics operations closer to
Walmart also offers free "site-to-store" options. One reason:
Orders picked up at stores generate an average $60 additional
purchase on the same trip, said spokesman David Tovar. And Walmart
sees e-commerce helping it enter urban markets that have resisted
supercenters. At an analysts' conference last month, Mr. Anderson
said the retailer will "overindex" in online ads in urban areas it
hasn't reached with stores.
E-commerce may also help Walmart profit from the upscale
shoppers it has had trouble appealing to since its latest strategic
reversal. In the past year, to appeal to its core consumers in the
$30,000-$60,000 income range, it added back 10,000 items and
millions of square feet of display space, something it had
previously cut to make stores more visually appealing to upscale
shoppers. Predictably, trips and spending among wealthier
households suffered, according to Consumer Edge Research.
Some see Walmart's new iPad app as aimed largely at more upscale
urban shoppers reluctant to enter its stores -- both an alternative
and inducement to at least pick up items ordered online. (Walmart's
Mr. Tovar, however, noted that iPads appeal to more than just the
wealthy: They've become one of the most popular items so far in the
layaway program the retailer restored last month.) Walmart earlier
this month also began testing Walmart.com-branded pop-up stores in
more upscale Southern California shopping centers.
But the e-commerce strategy is far from complete. Walmart has
recently named a new team to flesh out details, according to people
familiar with the matter. And they say Walmart, once a leader in
computing infrastructure, needs to ramp up spending to catch up
with Amazon there as well.
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CORRECTION: In an
earlier version of this story the first name of Joel Anderson,
president of Walmart.com U.S., was mistakenly listed as Jeff