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When Wal Mart Flexes Its Cybermuscles...


The Corporation: Strategies

When Wal-Mart Flexes Its Cybermuscles...

Plans for a beefed-up Web site make E-tailers nervous

Everyone knows that to succeed in E-commerce, you've got to get in early, and big. Come late to the game, and you might as well pack it in. But Wal-Mart Stores Inc. is about to test that most sacred of Web rules. After three years of tinkering with its Wal-Mart.com site--and sitting back while others blazed new trails on the Internet--the discount retailing giant finally appears ready to flex some online muscle. And the betting in Silicon Valley and among shopping experts is that Wal-Mart could wind up dominating this retail neighborhood, too.

Up to now, Wal-Mart.com has remained an E-commerce midget. It ranks No. 43 among online shopping venues, according to Media Metrix, trailing such upstarts as eBay Inc. and Buy.com Inc. While Amazon.com Inc. hauled in nearly 10 million visitors in May, Wal-Mart.com welcomed only 801,000. For the year, some analysts expect Wal-Mart's Web effort to generate sales of under $50 million vs. $157 billion total sales for the chain.FAMILIAR GROUND. Before the end of this year, though, Wal-Mart promises to unveil a Web site with beefed-up offerings of everything from toothpaste to apparel and consumer electronics to more closely match the breadth of its land-based stores. One sign that the discount-store giant expects a rapid ramp-up: It recently signed deals with order-processing expert Fingerhut Business Services Inc. and bookseller Books-A-Million Inc. Both know how to distribute individual orders straight to customers' homes--a far different proposition than shipping in bulk, which is Wal-Mart's expertise.

This is familiar ground for Wal-Mart. When it was preparing to break into the grocery business with its first supercenters, it studied the competition, then hired wholesalers to do much of the support work. As it perfected the models, Wal-Mart absorbed that work--and then steamrolled local competitors. Now it's hoping to do the same on the Web. "This process is not new for us as we begin new businesses," says Senior Vice-President Glenn L. Habern, who's leading Wal-Mart's online charge.

Wal-Mart is trying its best to play down the relaunch. But it clearly is headed for a collision with Amazon, the preeminent E-tailing brand that on July 13 said it will branch out from books, music, and videos into toys and consumer electronics. Wal-Mart stores already are known for those categories and the new site will stock them as it tries to stake a claim as the Web's low-priced general store. Says Chief Executive David D. Glass: "We'll pursue [online retailing] more aggressively this year because our customers and other people's customers are beginning to tell us more and more about what they really want and expect from the Internet."ADVANTAGES. With "Wal-Mart Interactive" still under construction, execs are cautious about revealing details. But in an interview with BUSINESS WEEK, Habern, 54, says the site will have products from all 25 categories in a typical Wal-Mart discount store. That's more than double the current online selection. The new site will have a richer choice of higher-priced items--such as DVD players and digital cameras--than even the stores. And the online book offering will swell from 50,000 titles to 700,000. Amazon says it has access to 4 million titles, including out-of-print books.

Don't look for groceries on Wal-Mart's site, at least for a while. But you'll be able to return products ordered via a computer to any of Wal-Mart's 2,451 U.S. discount stores. And "personalization" technology will tailor online specials to a customer's shopping habits. If you're a regular buyer of cat food, for instance, you won't see deals on dog chow.

None of this sounds revolutionary. Repeat visitors to Amazon, after all, are used to getting tailored recommendations of books and CDs. So why all the fuss? Wal-Mart has formidable advantages in brand recognition, buying power, and technology. And none of the E-tailing leaders has the financial heft of Wal-Mart, which is expected to earn $5.4 billion this year, up 23%.

Today, those other outfits are offering cut-rate prices--and losing money--to build market share. But tomorrow, if Wal-Mart makes money at the same or lower prices, they may have no choice but to bleed red ink. Wal-Mart "can take the tremendous volume discounts that it gets and apply that to an Internet pricing model that no current or future Internet company could possibly hope to challenge," says retail consultant Burt P. Flickinger III of Reach Marketing. The pattern will sound familiar to many bruised Wal-Mart rivals.

A demographic shift on the Web could also work in Wal-Mart's favor. Internet sales to consumers should swell from $12 billion this year to $41 billion in 2002, says research firm Jupiter Communications LLC. Many of Wal-Mart's lower- and middle-class customers may not be online now, but they are likely to dominate the ranks of new users. "Internet users are increasingly coming to resemble the population at large," says Jupiter analyst Kenneth R. Cassar.REAL-WORLD STABILITY. As that happens, a name like Wal-Mart that conveys real-world stability may push aside early Web innovators. Says Robert C. Kagle, general partner of Benchmark Capital, which backs E-tailing efforts by such players as Toys `R' Us Inc. and drugstore planetRx Inc.: "The power of their brand and their supplier relationships are going to be huge advantages for them in the online world."

But will loyalty to Wal-Mart translate to the Web? That will depend on price, product assortment, and service. Prices are easier to check and match on the Web, and one-stop shopping is less of an advantage if a specialty store with better selection is only a mouse click away. But look for Wal-Mart to leverage its huge base of stores. Besides allowing returns, it is likely to heavily promote the Web site to the 90 million customers entering its doors each week.

Amazon professes to be unfazed by the drumbeat of anticipation about Wal-Mart's plans. "There's room for thousands of successes on the Web. It's not a winner-take-all proposition," says Amazon spokeswoman Kay Dangaard. But some analysts think that in the long run, only two or three broad-based retailers will thrive. Retail consultant Gary M. Stibel, principal with the New England Consulting Group in Westport, Conn., has watched for years as Wal-Mart studied consumer behavior on the Web. "There is no company on this planet that knows more about the Internet and the way to make money through E-commerce," he says. After a shaky start, the giant of Bentonville, Ark., has a good chance to show who's the real Wal-Mart of the Web.By Wendy Zellner in DallasReturn to top


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