Walmart's e-commerce offensive is a long game

Profile picture for user slauchlan By Stuart Lauchlan August 18, 2015
Walmart's CEO is haunted by a 1996 Fortune magazine article about the fate of his firm. In 2015, the US retail giant stands at another crossroads with hopes pinned on e-commerce investment.

We will win the future of retail if we make the right choices as a business. We have a strong point of view on what that future will look like.

It’s a firm statement of intent from Walmart President and CEO Doug McMillon as the US retail giant continues its struggle to reinvent itself for an omni-channel world.

It’s a position that Walmart’s been in before. At the back of McMillon’s mind today is a Fortune magazine article from 1996, entitled Can Wal-Mart get back the magic?, which openly questioned whether the company could re-imagine itself in the wake of the death of founder Sam Walton a few years earlier.

As the company now comes under pressure from online challengers, McMillon has a clear view on what needs to be done - and how it needs to be done:

We’re moving forward on our enterprise strategy to position ourselves to win, playing offence, which is the only way to play in retail.

What that means beyond the rhetoric is a heavy investment in technology and digitalization. McMillon says:

Through technology, data and mobile we have incredible new ways to serve customers today and the opportunities are only growing. We believe the winners in retail will be those who can bring together the best of the offline world with the best of online to serve customer however they want to shop and we believe Walmart has unique competitive advantages in this race.

A primary goal for McMillion is the bringing together of online and offline channels. He points to the early response to grocery home shopping pilots as a case in point, claiming:

Anecdotally, I can share that customers have told us it’s changing their perception of the shopping experience at Walmart. In stores, we have been aggressively pursuing store pick-up options and pick-up while on a very small base in Walmart terms is growing very quickly.

At, we are also seeing stronger sales as members appreciate the convenience of our club pick-up. We are also focused on leveraging data to bring exciting member relevant merchandise to our clubs and online with an eye towards to growing our share members from the higher income household demographic.

E-commerce focus

E-commerce capabilities lie at the heart of the Walmart strategic direction. On the frontline of delivering this is Neil Ashe, Walmart, CEO, Global E-commerce, who argues:

Ultimately these capabilities are enabling experiences that impact the stores and clubs as well as eCommerce. Customers see us as Walmart and Sam’s Club, not a collection of shopping channels. We are delivering experiences on apps and sites and in stores and clubs that come together to differentiate us in the eyes of our customers and members.

Ashe cites growth in and US business as a case in point:

A great example of how everything came to life with our Dare to Compare event that we kicked off in July. This event created a perfect opportunity to highlight that customers can trust us to offer them the assortment they want at low prices every day, not just during a one day sale.

We were able to use our technology platform and sophisticated pricing algorithms to help us track and deliver lower pricing than competitors. Given that we’ve tripled our assortment in the past three years, we had more items for customers to shop. Customers could then choose how to get their purchases in the most convenient way for them.

We offered customers the option to get orders shipped to their door or to a store with same day pickup. In fact, it led to our biggest day of the year so far for same day pick up. The flexibility of our new platform allowed us to move very quickly and the new site delivered a better, faster shopping experience to customers. And those customers who are shopping on mobile devices had an improved experience, thanks to the responsive design we rolled out in the quarter.

We are using e-commerce to bring both new customers to Wal-Mart, as well as to deepen our relationship with our existing customers. On the largest day of our Dare to Compare event, we saw more than double the number of new customers to than a typical day.

Another significant development of Walmart’s online strategy has been the acquisition of the remaining 49% of Chinese e-commerce player Yihaodia. Ashe explains:

Yihaodian now has about a 100 million registered customers, more than twice as many as when we first invested. Our primary goal is to continue to accelerate Yihaodian’s core eCommerce business and maintain strong local Chinese expertise.

Now that we are the sole owners, we will be expanding our leadership team from within the Yihaodian business from within Walmart and from the eCommerce industry in China. We will also leverage Walmart’s global reach and scale to better benefit Yihaodian, including global sourcing.

But while he points to successes to date, Ashe is aware that continued investment is going to be essential:

All of this was made possible because we have a built talent dense Internet technology company inside of Walt-Mart. We are now able to create new experiences for customers across digital and physical.

My take

The basic strategy is ticking all the right boxes, but despite this, Walmart this week scaled down expectations for e-commerce revenue growth from 20% to mid-teens.

In addition, re-invention is expensive, but necessary and a long-term play. .

Charlie O’Shea, VP at at Moody’s, made a sound observation yesterday that:

Walmart’s Q2 performance reflects the negative impact on near-term earnings of long-term investments in e-commerce and in its employees that we believe will ultimately bear fruit.

Investing in the development of an online channel, which is in effect building a second business, is not cheap and results do not happen overnight.

As we have seen with many other retailers, including Amazon, there are apt to be periods where, depending on the investment cadence, short-term earnings can get a bit choppy.

The trick here is going to be retaining Wall Street’s confidence in the long game.

In the meantime, that 1996 Fortune article still rings true.