Five years ago, the world’s largest retail chain didn’t have to worry much about the world’s largest online mall. After all, only about a quarter of Wal-Mart customers shopped at Amazon, according to data from the research firm Kantar Retail. Now half say they do.
That’s changing as two trends converge: Wal-Mart’s traditional customers — bargain hunters making less than $50,000 a year — are getting more tech savvy, and less-strapped shoppers who began frequenting Wal-Mart during the recession are now rediscovering Amazon, said Bryan Gildenberg, a Kantar analyst based in Glen Ridge, New Jersey.
“Amazon has moved from being this unusual niche competitor for Wal-Mart to a force that can reinvent the industry,” Gildenberg said in a phone interview. “Young people are tech savvy and they’re unemployed, too. The affluent shopper is trading back out of Wal-Mart and Amazon is a bigger part of their life than before.”
The changing habits of Wal-Mart’s customers and Amazon’s growing clout have Wal-Mart executives and e-commerce managers focusing on the Seattle-based giant as never before.
“Amazon is always in our sights,” said Jeremy King, hired in July as chief technology officer of @WalmartLabs, the retailer’s e-commerce skunkworks in Silicon Valley. “In the U.S., Amazon is a very big competitor. My biggest issue is playing a catch-up game.”
For years, Wal-Mart’s online operations have lagged behind those of its brick-and-mortar rivals. In the past decade, Wal- Mart has tried hiring outside firms to develop its Web store and deployed a rotating cast of executives to find a solution. Yet last year online sales amounted to less than 2 percent of revenue, according to Kantar.
Meanwhile, Amazon is on the march, successfully moving into merchandise that Wal-Mart traditionally has sold, from diapers to vacuum cleaner bags.
In its last fiscal year, Amazon posted 41 percent revenue growth compared with 8 percent at Wal-Mart. Amazon shares have advanced 15 percent in the past 52 weeks, while Bentonville, Arkansas-based Wal-Mart has increased 18 percent.
Last year, Wal-Mart was the No. 1 destination for holiday shoppers with 53 percent of consumers shopping there, down from 59 percent in 2009. The percentage of consumers doing holiday shopping at Amazon.com rose to 46 percent from 38 percent in the last three years, according to Kantar research.
By next year, Amazon, now the No. 2 holiday shopping destination, may be No. 1, said Anne Zybowksi, a Kantar analyst.
Wal-Mart is “going crazy over this,” Zybowski said. “Wal-Mart is doing a lot with dot-com but they haven’t figured it out yet.”
Now Wal-Mart is doubling down. Since May, it has spent more than $300 million acquiring Web-related companies to build the talent base and expertise at @WalmartLabs. They include Kosmix, a social-media firm, and iPhone app creator Small Society. The retailer has hired more than 200 people and is upgrading its Web platform.
Internally, Wal-Mart has a new motto, “Anytime, Anywhere.” Soon it will be the online marketing slogan, Walmart.com U.S. President Joel Anderson said in an interview.
Eventually, Wal-Mart consumers will be able to shop for anything that’s available online or in stores, using smartphones or traipsing the aisles. Wal-Mart, like other retailers, aims to use its stores as pickup centers, said Venky Harinarayan, @WalmartLabs’ senior vice president of global e-commerce, a former Amazon executive who worked at Kosmix.
While Amazon has a pricing advantage on some items partly because it charges no sales tax in many states, Wal-Mart’s same- day, in-store pickup gives the retailer an edge, executives said. Already, online shoppers pick up more than half their purchases at a store, according to Anderson.
“Price has been a key component of our strategy, but it’s not the only thing,” he said.
Next month, Walmart.com is starting “Pay With Cash,” aimed at the 20 percent of Wal-Mart customers who can’t shop online because they don’t have bank accounts or credit cards. Using the new program, these core Wal-Mart customer can reserve products online and pay cash at their nearest store. Wal-Mart is reaching out to more affluent customers by piloting WiFi in some stores and by selling more expensive items — high-end Sony and Samsung televisions, for example — only online.
Wal-Mart’s physical stores and huge inventory also can work against it. It has become commonplace for shoppers at many retailers to scan items with phones or look them up online and then buy elsewhere. Wal-Mart calls this “scan and scram.”
To battle the scan and scram phenomenon, Wal-Mart is working on a pilot concept called “Endless Aisle.” If consumers locate an item in the apparel department, say, and the store doesn’t have the desired size or color, they can order it when they want on a smart phone.
“It’s going to be hard to live in such a world,” said Harinarayan. “You can’t ask people to leave their phones at the door. So you have to give them value and an experience.”
Wal-Mart hasn’t yet figured out exactly what suite of online features and phone apps will make its Internet site the go-to place for consumers, Harinarayan said. At the same time, no one else has, either.
“There is no dominant business model,” he said.
Matching Wal-Mart’s online technology to the emerging needs of customers is still a ways off, King said. The company needs a whole new online infrastructure to manage the global sales volume and host new features and apps, he said. King is currently hiring 87 engineers and coders to get the job done.
“We’re starting from scratch to build a foundation,” said King, who spent several years at EBay Inc. (EBAY) “Ideally, we’d have this platform built a couple of years ago.”
At first King wasn’t keen on joining Wal-Mart, telling recruiters Wal-Mart was “nowhere” in online retailing. Only a conversation with Chief Executive Officer Mike Duke persuaded him management was behind the effort.
“I said, ‘You guys aren’t even in this game,’” King said. “I talked to Mike Duke. He said he will double down, or even triple down on this. He said we’ll be in it to win it.”