Wal-Mart pins hopes on e-commerce investments as it issues profit warning

Profile picture for user ddpreez By Derek du Preez August 14, 2014
Summary:
The global retailer has undertaken a top-to-bottom rebuild of its entire global technology platform and has made some new hires in its e-commerce business, in a bid to drive online sales.

Wal-Mart has issued a profit warning this week indicating that footfall through its major stores in the US is flat, but it has also placed a big emphasis on e-

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commerce investments to drive growth in the future.

Another week, another set of results that gives us some insight into the digital challenges facing major retailers in the US and the UK. Yes, economic conditions have been tough for the past few years and shoppers have been tightening their purse strings, but it can't be denied that the rise in popularity of online retailers and mobile shopping have played a significant part too.

Take a look at some previous examples covered here at diginomica, including Marks & Spencer's and Morrisons. It's also worth checking out this research from Accenture and SAP, which found that omni-channel customer experience is now a brand differentiator and that many retailers have reached a false state of omni-channel comfort.

So, whilst Wal-Mart this week updated investors with guidance that its full year earnings per share is likely to a range between $4.90 to $5.15, from a previous range of $5.10 to $5.45 – it quickly noted that this is a reflection of incremental investments in its e-commerce platforms.

Doug McMillon, Wal-Mart president and CEO, said:

I’m pleased with our solid earnings per share performance. As it relates to the positives from the quarter, I’m encouraged by the performance of our International business, our Neighborhood Market sales in the U.S. and by our e-commerce growth.

Our investments in e-commerce and mobile are very important, as the lines between digital and physical retail continue to blur. Our customers expect a seamless experience, and we’re working to deliver that for them around the world.

The company's Q2 results highlighted that e-commerce sales have globally increased 24% on a  constant currency basis, with double-digit growth in the US, UK, China and Brazil. In fact, Wal-Mart's UK subsidiary, Asda, today announced that it is making good progress in its ambition to lead the retail market online, where its market share has increased to 18.4% percent.

The growth in the UK is being driven by Asda's 'Click & Collect' initiative, which allows customers to order online and collect their goods in-store or at a nearby location. Click & Collect now accounts for 10% of all online orders and it expects that this will rise to 30% of all orders in the next five years.



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Wal-Mart, meanwhile, noted that its recently relaunched mobile platform is now responsible for over half of the traffic to Walmart.com. The company's e-commerce chief also said that the enhancements now allow the mobile team to release new updates to the platform every 4-6 weeks, creating a better customer experience for buyers.

Brian Yarbrough, industry analyst at Edward Jones, noted that online investments are going to be key for Wal-Mart. He said:

They continue to struggle driving traffic to stores. It's difficult out there. At some point, we've got to see better same-store sales.

E-commerce is key. It's the right place to be investing in.

But what exactly has Wal-Mart been investing in? A quick look at the transcript from the earnings call provides a lot of insight, where Neil Ashe, president and CEO of global e-commerce at the retailer, outlined how Walmart.com has had a complete overhaul. He said:

Looking at Walmart U.S., we saw double-digit sales growth, and we continued to outpace the e-commerce market overall. The major highlight was that we started to roll out a new walmart.com site experience. To the consumer, it’s simpler, it’s faster and it’s easier shopping experience. But, it also represents a major technical feat that involves a top-to-bottom rebuild of our entire global technology platform.

I’m also really excited about the rollout of Savings Catcher (a new price-matching app). It’s a perfect demonstration of how we are integrating digital and physical experiences to do the work for our customers, and it reinforces their trust in Walmart’s low prices. We’ve been delivering a lot of elements of the tech platform this year, but most of those have been technology that customers don’t see, sitting under the hood.

The tech platform gives us much greater speed and flexibility. Changes to the site can be made in minutes versus days, so we can innovate, test, iterate and deploy new capabilities in real time. The site has much more personalization, and each customer’s experience is always changing with fresh content that helps them discover new items. We’ve built our own personalization engine to customize the experience.

Customers now receive relevant options and recommendations, while they are on the site, and via email and text messages. And, given that more than half of traffic to walmart.com is coming from mobile devices, we designed the site to adapt to any size device, particularly tablets.

Ashe also outlined how Wal-Mart has made a number of significant hires in its e-commerce business, including a new CEO of Walmart.com and a new COO for global e-commerce. He said that he now believes the company has the strength at leadership level to achieve its online goals and that it is

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continuing to hire talent out of Silicon Valley.

Verdict

It's a race to the top and this is just one story of a retail company making significant investments in an industry that is struggling to figure out how to transform.

A strong focus on e-commerce and multi-channel is obviously good news for Wal-Mart, but only time will tell whether or not it has done enough, early enough, to compete with the new innovators in the market.