How Wal-Mart Is Building a Better Online Store

Wal-Mart’s goals for online sales are simple and audacious.

“We want to know what every product in the world is. We want to know who every person in the world is. And we want to have the ability to connect them together in a transaction,” Neil Ashe, president and CEO of Global e-Commerce for Wal-Mart, said during a May 1 Barclay’s Retail & Consumer Discretionary Conference, a transcript of which is posted on the Bentonville retailer’s corporate website.

Since 2011, Wal-Mart Stores Inc. has poured millions of dollars into its e-commerce division, and its investments are paying off.

For the current fiscal year, the first in which Wal-Mart has released online sales numbers, the company expects to have $9 billion in online sales. Although that’s only about 2 percent of its $466 billion in sales during the fiscal year that ended Jan. 31, its online sales are climbing. Its U.S.-only online sales were estimated at $6.31 billion in 2011 by the research firm Kantar Retail of Boston.

Wal-Mart’s online sales trail far behind the online retail sales king, Amazon.com Inc. of Seattle, which had revenue — all of it online — of $61.1 billion in 2012, up 27 percent from the previous year. Still, Wal-Mart is scooping up praise for some of its recent online initiatives.

In 2012, Wal-Mart was named the 2012 Mobile Retailer of the Year by Mobile Commerce Daily, an online newsletter that covers the mobile marketing industry. And the search function Wal-Mart created specifically for its online retail site is getting positive reviews.

Wal-Mart “is becoming more relevant in online retail and … its significant investments in this area are helping the company catch up” to Amazon, Matt Nemer, senior analyst for Wells Fargo Securities LLC, wrote in a Dec. 3 research note, “Walmart Ties Amazon on Site Search.”

In addition, Wal-Mart is tapping its 4,000 stores in the U.S. to help deliver products purchased online. The network of stores “places us in proximity to customers unlike any other retailer,” said Ravi Jariwala, a spokesman for Wal-Mart.

Using the stores as distribution centers for online shoppers, Wal-Mart has rolled out a number of programs that allow customers to order millions of items online and pick them up in stores.

“We are developing capabilities that will serve customers anytime, anywhere,” Jariwala said.

Wal-Mart’s moves are coming at a time when online sales are continuing to blossom. U.S. online retail sales are expected to reach $262 billion in 2013 and account for 8 percent of all retail sales. Online sales will continue to grow to $370 billion by 2017, when they will account for 10 percent of all retail sales, according to a March forecast report by Forrester Research Inc. of Cambridge, Mass.

A New Way to Search

In August, Wal-Mart unveiled its new search engine, Polaris, which was developed in 10 months by @WalmartLabs, which is part of Wal-Mart’s Global e-Commerce division in San Bruno, Calif.

Walmart.com’s search engine seems to know what the customer wants. For example, when a shopper types in “denim,” Polaris returns results for jeans. Or when “flats” is keyed in, Polaris knows to bring up women’s shoes rather than flat-screen televisions.

The engine has received glowing reviews because of its ability to decipher what the customer is looking for and even interpret poor spelling.

Wal-Mart’s Polaris is “on par or even slightly better than Amazon” in terms of product searches after a test of 100 items, Nemer, of Wells Fargo, said in his report.

“Interestingly, when we obscured the test with a more general description (i.e., removed a specific model number) and misspelled words, Wal-Mart actually ranked slightly better than Amazon,” the research note said.

The search feature is key because consumers’ patience is limited. If they don’t find what they’re looking for promptly, they’ll leave the retailer’s website. In addition, few consumers make it past the top 10 search results, Nemer said.

“So we believe it is becoming increasingly important for the right product to show up on the first page of results,” he said.

Site to Store

Wal-Mart online customers have the option of ordering a product and having it delivered to their closest Wal-Mart store, and in some cases the item could arrive that same day.

Wal-Mart’s site-to-store program started in 2007 and has been a hit for the retailer. Jariwala said nearly half of Walmart.com orders are picked up in a brick-and-mortar store.

By choosing to have the items delivered straight to a store, the customer doesn’t have to pay for shipping and it’s also convenient, said Robin Sherk, a director of retail insights at Kantar Retail.

If customers are making their weekly grocery trip to Wal-Mart, they might as well pick up their online order while they’re there, she said.

“I’d rather be able to pick up the package on my schedule versus having to wait for a delivery to come,” Sherk said.

One of Wal-Mart’s top priorities is developing “our next-generation fulfillment network” to deliver products purchased online to customers quickly, said Charles Holley, Wal-Mart’s chief financial officer, during a consumer and retail conference held in March. A transcript of that conference was also posted on Wal-Mart’s corporate website.

“We will continue to invest not only in how the customer wants to shop but how they want to receive the merchandise,” Holley said.

Nemer, the analyst from Wells Fargo, said in a Feb. 21 report that the delivery system “could be a potential game-changer.” But he added that Wal-Mart hasn’t released many details about its fulfillment plans.

And for the consumer who is nervous about entering credit card information on a website, Wal-Mart in 2012 launched a pay with cash feature. It allows people to order online, have the item shipped to a Wal-Mart location and then pay for it upon pickup.

Wal-Mart Mobile

Wal-Mart’s application for smartphones has also been a success.

“It is not enough to simply have a presence in the mobile commerce space,” Mobile Commerce Daily said in a Dec. 31 article. “Retailers need to dominate it, and Walmart reigns.”

If customers don’t find what they want in the store, they can turn to the Wal-Mart app on their smartphone and order it there, said Sherk of Kantar Retail.

Wal-Mart is testing an app for iPhones called Scan & Go, which allows customers to scan items while shopping, bag them and then pay for them at a self-checkout register.

The test started in 70 stores last year and has been expanded to 200 locations.

“In the coming weeks we’re going to be testing additional features like mobile coupons and mobile gift cards that can be used as part of that Scan & Go experience,” Jariwala said.

He wouldn’t say what security measures are in place to ensure customers aren’t stealing while using the Scan & Go.

But Jariwala said the program still is being tested and no decision has been made about expanding it nationwide.

Bring on the Competition

CFO Holley said in the March conference that Wal-Mart’s online presence had come a long way from its initial website launched in the 1990s.

For years, online shoppers largely ignored Wal-Mart. In 2011, however, Wal-Mart spent $300 million to acquire the social and mobile media company Kosmix of Mountain View, Calif., and made other investments. Also in 2011, Wal-Mart’s board of directors created the Technology & e-Commerce Committee to assist in issues related to e-commerce and innovation.

“So we think we are competing very well from where we started from,” Holley said in the conference. “We have a lot of work to do to make sure we are more efficient in getting the products to the customers, but we feel like we have the tools to go do that. So we look forward to the competition.”