World’s biggest retailer Wal-Mart (WMT) is having a tough time perking up sales as people opt for shopping either online or at nearby stores. It is enhancing its online platform through acquisitions and making various other changes. With a young CEO at the helm of things, can Wal-Mart get on with the times and emerge stronger?
The Amazon Ache
The biggest challenge in Wal-Mart’s path is the trend toward online shopping. More and more shoppers are discovering the ease of buying online, and the discounts are the icing on the cake. Wal-Mart has been trying hard since a decade to boost its online sales, and though revenue has grown, it is far from competition. In 2013, the retailer made $10 billion through online sales, which is 30% higher than 2012. But if we compare it with the world’s largest online retailer Amazon’s (AMZN) $68 billion in sales, Wal-Mart is nowhere.
Wal-Mart is not the only one Amazon is upsetting. Other physical retailers like Target (TGT) are feeling the heat, too. Target saw its profit fall 16% in the first quarter ended May 3, with U.S. comparable store sales going down 0.3%. For Wal-Mart, U.S. comps have gone down in 12 of the previous 20 quarters.
Gearing Up -- Stores or no Stores
Wal-Mart has been pulling up its socks. It has made 14 acquisitions in the past three years, all of them adding expertise to its dotcom presence. And this is just the beginning. Wal-Mart’s new CEO Doug McMillion said in May that the pace of acquisitions is going to accelerate, which is part of a bigger plan to take on digital companies like Amazon. "It's clear we need to change, and we need to change fast," the CEO said. McMillion went so far to suggest that in the future, physical stores may not exist at all.
In each of the past three months, Wal-Mart took over a tech company. In May, it was Adchemy, a product search company; in June, Stylr, a mobile application that helps shoppers find desired clothes at close by stores; and in July, Luvocracy. Luvocracy is a social shopping website that helps people choose stuff based on the opinion and recommendation of known persons, like family, friends or blog writers.
All of this goes to show that Wal-Mart is doing all it can to shed the image of an old-style retailer with just brick and mortar stores.
The company’s also made big-ticket changes at its ranks. Wal-Mart’s U.S. CEO Bill Simon would be stepping down after he failed to spruce up sales. President and CEO of Wal-Mart Asia Greg Foran will succeed him. In June, U.S. president of walmart.com Joel Anderson resigned, and Fernando Madeira got promoted to lead domestic and Latin America e-commerce teams, as well as other growth areas. Earlier, Madeira was president of the Latin American e-commerce division only.
Small Is Big?
Another trend that brick and mortar retailers are grappling with is people’s preference for near-the-home outlets like dollar stores and pharmacies to buy things of need, rather than drive all the way to a big-box Wal-Mart or Target. This way shoppers also save on fuel.
Wal-Mart has been setting up what are called mini stores. Sales at these stores have been on the rise but analysts feel they won’t make a big contribution to total revenue. In March, the company made a soft launch of its first convenience store in Bentonville, its corporate headquarters.
However, the competition is going to get even tougher with Dollar Tree and Family Dollar, two big dollar-store chains, joining hands.
Wal-Mart is going through a big transition. Its tried and trusted way of selling products is no longer a guarantee of future sales. But it is learning the digital ropes, moving in sync with the present trends and is not afraid to make changes. All this augurs well for Wal-Mart and may start showing in its performance in the future.