Falling Far Behind Amazon, Walmart Commits to $1Billion Ecommerce Investment This Year

For most online companies, reports of 22% annual sales growth and $12.2 billion in sales would be greeted ecstatically. But Walmart is not most companies.

Those results only made it the #3 ecommerce company in the US. And Walmart, accustomed to being #1 in everything it does, fears that catching up to Amazon is getting harder. So Walmart is innovating in ways that leverage its substantial retail strength such as drive-through store pick-up for online orders.

The promised $1 billion investment this year is a down payment in that effort. It is likely to be the first of many billions required. JL

Hiroko Tabuchi reports in the New York Times:

Walmart’s global e-commerce sales rose by 22 percent from the previous year to $12.2 billion. In the United States, Walmart is now the third-largest Internet retailer after Amazon and Apple.

In the world of brick and mortar, Walmart is a titan, ringing up more than $1 billion of sales a day.

But in the online world, the retailer’s business, while growing, remains far behind Amazon. With less than one-sixth the online sales of Amazon, Walmart has been repeatedly outgunned and outsmarted by Amazon’s price-matching, robot-utilizing, competition-crushing machine.

And now that sluggish sales are persisting at its supercenters, and with consumers spending more and more time shopping online, Walmart’s need to play catch-up in its online business loomed large at its annual shareholder conference on Friday. Doug McMillon vowed to tackle that quandary as part of the changes he outlined as the company’s relatively new chief executive.

Walmart’s board also voted on some changes on Friday, by electing only the third chairman in the company’s history. The post again went to a member of the founding Walton family, Greg Penner, 45, who will replace Rob Walton, son of Walmart’s founder, Sam Walton, and chairman for the past 23 years. Mr. Penner is Rob Walton’s son-in-law.

“One customer can shop with us in so many different ways — in stores, on their phones, at home,” Mr. McMillon told 14,000 shareholders and Walmart workers gathered at an arena outside the retailer’s Bentonville headquarters. “We’ll win one customer at a time.”

As part of its effort to become competitive on the web, Walmart has made a flurry of tech hires, committed to a billion-dollar war chest and announced a delivery program to challenge the king of online orders, Amazon Prime.

Walmart is set to start sending invitations this week to a pilot program called Shipping Pass, which offers unlimited, free three-day shipping from its online store for $50 a year.

Shipping Pass is a direct challenge to Amazon Prime, which charges shoppers a $99 annual fee for unlimited, free two-day shipping. It is also a desperate bid by Walmart, analysts say: The retailer is unlikely to make money on such a cut-rate offer.

Walmart, however, needs to make up for lost time online, said Burt P. Flickinger III, managing director of the Strategic Resource Group, a New York-based retail consulting firm.

“Walmart.com has been severely mismanaged,” Mr. Flickinger said. “Walmart would go a few years and invest strategically and significantly in e-commerce, then other years it wouldn’t,” he said. “Meanwhile, Amazon is making moves in e-commerce that’s put Walmart so far behind that it might not be able to catch up for 10 more years, if ever.”

Looking up at the leader is an unfamiliar perch for Walmart, which for decades had dominated retailing with a vast supplier network, stripped-down supercenters and rock-bottom prices. Before Amazon, Walmart was the retailer that undercut everyone else with impossible-to-beat prices and hefty scale, muscling them out of business.

But despite declaring a decade and a half ago — in 1999 — that Walmart.com was a priority for the company, the retailer has failed to translate its dominance in stores to online shopping. For years, it has struggled to figure out how to best deliver fresh food and groceries.

It hired Jeanne P. Jackson, an e-commerce pioneer and former chief executive of Banana Republic and head of online operations at Gap, to overhaul its online presence. But Walmart’s then-notoriously insular, and by some accounts, male-dominated culture, drove Ms. Jackson away in less than two years. Gradually, market anticipation that Walmart would become a viable competitor to Amazon dissipated.

In the meantime, Amazon beat one rival after another, dropping prices by double-digit percentages to undercut newcomers and swiftly driving them out of the market.

Mr. McMillon, a Walmart veteran who took the helm at the retailer last year, wants to again put e-commerce front and center, pledging to invest $1 billion in its online operations this year. Under Mr. McMillon, Walmart has expanded the number of products sold on Walmart.com to seven million from one million just three years ago. That number is set to rise to 10 million by the end of the year, though that is a fraction of the estimated 300 million items for sale on Amazon.

This spring, Walmart opened four new centers dedicated to filling online orders, each the size of 20 football fields. Its e-commerce team, based in San Bruno, Calif., a Silicon Valley suburb, has grown to 2,500 staff members from just 500 employees four years ago, and the retailer’s technology employees now engage in hackathons, alongside product and merchandising meetings.

In the last fiscal year, Walmart’s global e-commerce sales rose by 22 percent from the previous year to $12.2 billion. In the United States, Walmart is now the third-largest Internet retailer after Amazon and Apple, according to a ranking compiled by JPMorgan Chase.

“We’ve built a tech company inside the world’s largest retailer,” said Neil M. Ashe, who heads Walmart’s e-commerce business.

Amazon is hardly Walmart’s only online rival. Walmart’s traditional competitors, including Costco and Target, are quickly increasing their online sales. And the upstart Jet.com has raised more than $200 million to create a nationwide e-commerce business that offers the absolute lowest price on consumer products with a system that drives costs down by shipping from nearby retailers, and by allowing shoppers to save by combining orders or waiving returns.

But Mr. Ashe, who previously led CBS Interactive, said that Walmart’s strength lay in the many ways it could link its large physical footprint with its online business to offer customers a whole spectrum of ways to shop.

“Even the same customer doesn’t want the same thing every time,” Mr. Ashe said. “And only we can provide that unique combination of deliver it to your home when you want, pick up at our stores and the stores themselves. That unique combination is where we think the world is going, and where we think we are the only ones that can provide that.”

One new example of a way Walmart is blending a brick-and-mortar environment with its online offerings is its pilot Walmart Pickup-Grocery, a center that resembles a gasoline stand just a stone’s throw away from the company’s headquarters.

Here, shoppers sign in at a digital kiosk, park their cars and pick up the items that they ordered on Walmart.com. During a recent visit, a sport utility vehicle pulled up to the kiosk, then into one of the parking spots and was met within minutes by a Walmart employee who wheeled out an order of groceries in a trolley and loaded the purchase into the vehicle.

Walmart still has just one stand-alone pickup station in the United States, but has four other pilot markets where online orders can be picked up at regular stores. It is also testing home delivery in some areas. But it stresses that these are trials and has not announced plans for a nationwide introduction.

Walmart’s overseas subsidiaries are also ramping up their e-commerce business, in some cases surging ahead of American stores. The pickup station, for example, is an adaptation of an idea already in place at Walmart’s subsidiary in Britain, Asda. In China, delivery workers on scooters ferry 22-pound bags of rice to customers.

“It’s exciting,” Mr. Ashe, the e-commerce chief, said following the shareholders’ meeting. “We can serve you literally in ways no other retailer can."