By Tricia McKinnon
2020 is the year when the eCommerce narrative shifted in a major way. Before everyone was focused solely on Amazon but as retailers were forced to shift sales online during the COVID-19 pandemic a number of retailers came to the forefront with their eCommerce savvy and Walmart is one of those retailers. The 59 year old retailer has stood out for taking a challenging situation brought on by the pandemic and turning it into an area of strength.
One of the things Walmart has done very well is it has focused on its own assets and how to best leverage them. Take its store network. For many years analysts were saying that stores are dead butif Walmart didn’t start testing grocery pickup back in 2013its online pickup services would not have performed so well when put to the test during the pandemic.
Walmart’s strength in eCommerce can be seen in its results. Walmart’s eCommerce sales were up 79%in 2020 and were up 1% in 2021 on the back of strong growth in the prior year. Walmart is now the second largest eCommerce retailer in the United States with eCommerce making up around 13%of its sales. While Walmart trails Amazon by a wide margin in online sales Walmart is gaining ground. If you want to learn more about what has contributed to Walmart’s strong eCommerce performance then read on.
1.Omni-channel retailing is working. The secret to eCommerce success turns out to be….stores. Who would have thought having a network of stores would be so critical to selling merchandise online? Walmart had this foresight and nine years ago in 2013 it started testing a grocery pickup service. Since90% of the United States population lives within 10 miles of a Walmart store this move has become a game changer for the retailer.
Consumers love shopping online but what they really want is control. Control over where and how they receive their online orders. This couldn’t be more evident than during the COVID-19 pandemic.
Be honest, before the pandemic weren’t you were part of the vast majority of consumers that had never tried curbside pickup? Just a short time ago in February of 2020 only7%of American consumers had tried curbside pickup within that month, by June of 2020 that number jumped to 22% making itone of the fastest growingdelivery methods.
Instead of waiting and wondering exactly when your order from Amazon is going to arrive Walmart’s pickup services remove that uncertainty. This service is also beneficial for consumers worried about their goods being stolen after they are dropped off. More than1.7 million packages are lost or stolen each day in the United States with a third of consumers reporting they have had a package stolen.
The popularity of pickup services has challenged the notion of what consumers want from eCommerce.It seems like a misnomer that someone will place an order online at home and then will put on their jacket get into their car and go to pick it up. But that is exactly what is happening and these services continue to grow in popularity.Take a look at Target. In the third quarter of 2020 Target’s Drive Up sales were up 500%,home delivery sales were up 280% and in-store order pickup was up 50%.These services have also contributed to Target’s eCommerce sales growth with Target’s online sales up155% in the third quarter of 2020.
“Having a wide range of fulfillment options, including delivery to home, collection from store – and by using stores for fulfillment – allowed Walmart to ramp up capacity in a way that many other players struggled to do. We also believe that by using stores effectively, Walmart mitigated some of the higher costs associated with the online channel” said Neil Saunders, Managing Director at GlobalData Retail. That sentiment was echoed when Walmart CFO Brett Briggs said: “it is a big advantage being an omnichannel retailer and I think that is showing right now. We were able to quickly use stores to fill online orders.” Approximately a quarter or $20.4 billion of all click and collect purchases made in the United States are fulfilled by Walmart.
Omni-channel retailing is one area where Amazon actually lags other retailers.Amazon has more stores than you think, over 600 when you include Whole Foods, Amazon Books, Amazon Fresh etc.. Stores are so important in categories like groceries that Amazon opened a new brick and mortar grocery chain, Amazon Fresh in 2020. Yes, Amazon did that in the middle of a pandemic, demonstrating that stores are still a critical part of any retailer’s eCommerce strategy. But it will take Amazon many years before it has the kind of store network Walmart has where grocery pickup is availableat over3,500Walmartlocations.
2.Consumers are looking for one stop shopping.It is not a coincidence that many of the retailersperforming well during the COVID-19 pandemic offer one stop shopping. From Walmart to Target to Costco customers are seekingrefuge in retailers where they can get what they are looking for in one trip. You could attribute this to the pandemic since consumers are reducing their exposure to COVID-19 by consolidating their shopping trips but that doesn’t explain why consumers are choosing these retailers for online purchases when they can easily and safely make purchases from other retailers from the comfort of their homes.
What we are witnessing is a trend towards moreconvenient shopping trips.Why buy your grocery and household items online from several different retailers when you can save time by getting everything you need from Walmart.
The desire for one stop shopping is not new. Think about the days when Sears was the largest retailer in the world. Consumers would spend their Saturday afternoons at the mall getting everything in one trip.The fall of Searsand other department stores has only served to usher in a new kind of department store, the big box store. It has a different name but in many respects it serves the same function.Consumers can shop at a Walmart or a Target and get most of their weekly needs fulfilled without having to shop at multiple stores.
3. Consumers are looking for value.Walmart is one of the largest retailers in the world for a reason it capitalizes on the consumer’s desire for value. While everyone focuses on same and next day delivery at the end of the day no matter how fast a retailer delivers merchandise no one is going to buy it if it isn’t what the customer wants. Today’s consumer is strapped for cash. They werestruggling financially before the pandemicand then the pandemic hit making it even more difficult for consumers to keep up with cost of living.
Make no mistake having a value-based merchandising strategy is part of Walmart’s eCommerce success.66% of consumers surveyed said “best value for money” keeps them returning to a brand, taking the top spot in terms of consumer preferences. “Lowest prices” came in second and “fast shipping” came in eighth place.
Some of themost successful retailers todayincludeDollar General,Dollar Tree, Target, Costco and Walmart.Dollar General, for example is planning to open 1,110stores this year. These retailers all target the low end of the pricing spectrum. Many consumers started shopping at these retailersduring the 2008-2009 recession and kept shopping at these stores once the recession was over. This shift in shopping habits has negatively impacted retailers in the middle of the pricing spectrum like JC Penney, Sears, Gap and Kohl’s.
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4. Big investments are often required to succeed in eCommerce. eCommerce isn’t cheap. Customers love it but it’s costly for retailers. After Walmart suffered its first decline in sales in 2015 since 1970, it realized it had to be more aggressive.To increase its eCommerce growth Walmart purchased a host of eCommerce businesses including Jet.com for $3 billion (in 2016), Bonobos for $310 million (in 2017), Eloquii for $100 million (in 2018) and ModCloth for between $50 million to $75 million (in 2017).
Without this multi billion dollar investment it is hard to say where Walmart’s eCommerce business would be today. Some of those businesses have since been sold or deprioritized but in the process Walmart gained know-how, processes and talent. Those investments don’t even include all of the money Walmart has invested in pickup services, fast shipping and its mobile app.When all of these services and accompanying technology works seamlessly with very little downtime it’s easy to forget the enormous amount of resources it takes to offer best in class eCommerce.Walmart doesn’t break out profits for its eCommerce business but it is estimated that in 2019 Walmart’s U.S. eCommerce business lost $2 billion.
5. Frequently purchased items draw customers in week after week. Expenditures on food is the third largest consumer expensein the United States after housing and transportation.If a retailer sells groceries it can count on a steady flow of traffic.We now think of Walmart as a grocery retailer but when Walmart opened its first store inthe 1960s it didnot sell groceries. Expanding into groceries is largely credited with turning Walmart into the retail giant it is today.
Selling groceries increases frequency of visits since most consumers shop for groceries on a weekly basis.After a consumer shops for groceries at any of the big box retailers they will often browse and then purchase other items.How many times have consumers bought a TV at Costco on their way to pick up some broccoli? The number is likely in the millions.
Amazon has also recognized this dependency, with Amazon’s former CEOJeff Bezossaying over a decade ago that for Amazon to become a $200 billion retailer it has to figure out how to sell food.Amazon has surpassed that sales goal and with that in mind it should be no surprise that Amazon bought Whole Foods in 2017 or that it opened a new grocery chain, Amazon Fresh, in 2020.
Core to any eCommerce business is website traffic that returns on a frequent basis.Facebook marketing budgets eventually run out so it’s better to create an intrinsic reason for customers to return as much as possible.Retailers do this by constantly dropping new merchandise making customers eager to see what’s new. But an even better strategy is to tie traffic to an activity customers are already doing.There really isn’t a better frequent shopping activity than buying groceries. Everyone does it because they have to. I don’t need to see a sponsored ad in my Facebook feed from Walmart to remind me it’s time to buy groceries. I do it naturally. So if you want to know what’s better than Facebook marketing it’s called a routine that every consumer conducts every week forever that brings them to your website. Walmart’s got that, do you?
6. A growing online marketplace and advertising business.When you shop on Amazon there is merchandise Amazon buys and resells at a markup (first party sales) and there are goods third party sellers sell directly to you. These sellers are often small to medium sized businesses sometimes retailers you have never heard of and they pay Amazon a commission on every sale. At some point Amazon realized it could make more money by creating a marketplace of third party sellers and last year56% ofAmazon’s unit sales camefrom these sellers.
If you watch Amazon for long enough you can come up with some good ideas for what to do with your own business. Clearly Walmart is watching and now it’s building its own marketplace of third party sellers which you can find by shopping on walmart.com. Walmart has over 100,000 of these sellers which pales in comparison to the 1.5 millionactive sellers that sell merchandise on Amazon. But Walmart now has around 170 millionSKUs on its website and growing this business has several benefits. “Our marketplace expands choice for our customers, helps our sellers grow, and enhances our profit margins,”said Doug McMillon Walmart’s CEO. “Our plan for this year includes strengthening the experience for sellers and adding fulfillment capacity so customers have access to more items faster.”
More third party sellers also helps to grow advertising sales. If you shop on Amazon you will notice the number of sponsored ads are growing. These are ads that third party sellers often pay for to increase the discoverability of their products. Those ads amount to big dollars, so big, Amazon had to announce the size of its advertising business for the first time earlier this year. Amazon made$31 billion in advertising sales in 2021, that’s more money than the $17 billion Amazon’s 600+ retail stores made last year.
With Amazon’s burgeoning ad business a badly kept secret for many years Walmart took notice and started to invest in its own. “Globally, it's been growing at a high rate with high margins and is now a $2.1 billion business in only a few years. And we expect this strong growth to continue. And as our e-commerce business, including marketplace, continues to grow, so will our advertising business,” saidMcMillon.“I think that's the headline. We've got a business that's becoming increasingly digital, the e-commerce business, first party -- third party is growing. It gives us the opportunity to grow advertising income. It's grown at a fast rate,”said McMillon.
