Quest for Web success begins a new with dot.com venture - Wal-Mart Stores Inc - WalMart.com

DSN Retailing Today, June 5, 2000 by Laura Hellee

Internet upstarts such as Amazon.com have stolen much of the thunder from traditional retailers since the recent inception of e-commerce. While that scenario has changed a bit in the last six months--with clicks-and-mortar emerging as the winning formula--there is still a lot of work ahead for retailers such as Wal-Mart to claim victory in the e-commerce marketplace. To this end, Wal-Mart has created a separate company for Walmart.com, relocated it to Silicon Valley and brought in a new high-profile ceo to head up the unit.

Internet retailers are all claiming they want to be the Wal-Mart of the Web, but the question really is, "Can Wal-Mart be the Wal-Mart of the Web?" Absolutely, say analysts, but there are some key factors that need to be addressed regarding Walmart.com before that can truly occur.

Currently, Walmart.com offers a 600,000-sku depth of product. And while that quantity is impressive, it's also cumbersome and has led to some technical issues that hinder the site. Navigation is awkward, and product information limited, with the majority of editorial provided by manufacturers rather than generated in-house, which helps to differentiate a site and make it unique, said Seema Williams of Forrester Research.

The presence of the Wal-Mart greeter on each page helps offset this somewhat, as does the site's on-line photo program and travel services, both of which provide a much-needed, value-added element to the program. But Walmart.com's success can't be measured solely by what the Web site is or isn't at this point in time, but rather by the operational, structural and growth-oriented initiatives it is taking to better build this business.

For all the criticism, analysts such as Williams emphatically agree that Wal-Mart has the ability to build a dominant e-commerce company and fully succeed with the format. Yet Walmart.com has a ways to go if it is to beat Amazon.com for the title of the Wal-Mart of the Web.

Visitors to the site numbered approximately 1.5 million vs. Amazon's almost 17 million for the month of April alone, according to Nielsen NetRatings. And according to Forrester's Williams, Wal-Mart currently ranks far below Amazon in the major categories, including books, music, toys and other media--all categories that Wal-Mart dominates in the bricks-and-mortar world.

The retailer must focus on integrating its site into its stores and more aggressively marketing to online shoppers, say analysts. The January re-launch was a step in the right direction, introducing a better page design, product promotions and pricing, said Karl Haller, principal consultant with PricewaterhouseCoopers, but the program is clearly a work in progress. Haller also believes the retailer should be more aggressive in incorporating Internet technology into its stores.

There are some core tenets to on-line retailing that go against the retailer's traditional programs. For example, Haller believes Wal-Mart should manage customer relationships through Walmart.com by building a detailed loyalty program. The retailer has never had such a program for some very good reasons.

Since more than 95% of the population currently shops at the chain, there has been little reason to reach out to customers with such an aggressive marketing tool. Additionally, building and maintaining such a program adds cost to the system and may serve to either increase operations expenditures or product prices in stores. In short, it is inefficient and does not best serve the Wal-Mart customer.

But on-line retailing is a different matter, say analysts. "That's something that Web retailers on the whole are able to do better than store-based retailers," said Haller. "There's no huge incremental cost to managing that data as the customer is entering it themselves. But it does start to challenge some of [Wal-Mart's] core notions."

Which is one reason why spinning off Walmart.com into its own separate company makes sense for this retailer. There are basically two camps on this issue: proponents of spinning off an Internet division into a separate company and those who believe in keeping it fully integrated with the parent company. For Wal-Mart, there are both benefits and risk to its decision to take the former route.

According to Kevin Turner, senior vp and cio of Wal-Mart stores, the retailer has a long history of successfully developing new formats by separating those divisions and bringing in new people from outside the company. Turner delivered the keynote address at Retail Systems 2000, held in Chicago last April, and pointed out that the discount stores, Sam's Clubs and supercenters are "three different formats that we ran independently. We didn't do it with the same people in the same jobs." Breaking out the Internet business is a logical step for the chain, he said.

As a separate Internet business, Walmart.com will be exempt from charging sales tax except in California, Utah and Arkansas, where the retailer has an actual physical presence. This allows it to be more competitively priced against other pure-play e-tailers. Higher pricing had been a big criticism of the program and posed a peculiar conundrum for the low-price leader, which suddenly found itself undercut by Amazon.com and eToys during last year's holiday season.