Internet strategy: Wal-Mart's evolving approach.

Henderson, Dale A. ; Er-Radi, Houda

BRIEF HISTORY OF WAL-MART STORES, INC.

"Wal-Mart", for whom does this name not sound familiar? Wal-Mart Stores, Inc. was founded in 1945, and its main offices are located in Bentonville, Arkansas. The main business field in which Wal-Mart operates is retailing through discount stores, supermarkets, specialty department stores, and restaurants. It also provides services through its family entertainment centers. Wal-Mart currently operates 1,821 Wal-Marts, 650 Wal-Mart super centers and 433 Sam's Clubs in the United States. Internationally, the corporation has over 974 locations ("Wal-Mart's 2000 plans", 1999). Additionally, Wal-Mart employs around 825,000 people. Its annual sales reach over $137 billion annually. Wal-Mart's 2000 plans for growth represent 34 million square feet of additional retail space or an 8 percent growth in square footage. Wal-Mart is famous for being a leader in offering the lowest prices to consumers. These prices are possible because the corporation has been able to efficiently achieve a low cost competitive advantage. Since 1996, Wal-Mart has decided to compete in the electronic market by launching its web site named www.Wal-Mart.com.

PRINCIPALS AND CHARACTERISTICS OF INTERNET STRATEGY

One main phenomenon that has marked the last decade is the emergence of Internet. The Internet constitutes an effective means for communicating and exchanging information. On the other hand, brick-and-mortar retailers have used the Internet as a new distribution medium. Online retailing and shopping are gaining popularity year after year. As the numbers show, from 1995 to 1998, the Internet economy grew 175 percent (Allen, 1999). It now accounts for over $300 billion in revenue and 1.2 million jobs. This is due to the convenience that the Internet brings to the consumer. The Internet has also permitted the creation of virtual retailers, which are characterized by having only an online presence, such as Amazon.com.

One reason that drives business organizations to go online is to add value to their customers by providing them with attractive and effective web sites. On the other hand, some companies use the Internet as an effective tool for exchanging information within the organization or with strategic partners, commonly known as the use of Intranets and Extranets, respectively.

In order for an Internet strategy to be effective, it must consist of several key principals and characteristics. One retailing giant that learned the importance of having an effective Internet strategy is Wal-Mart Stores, Inc. When implementing an Internet strategy, the retailer is advised to acknowledge information concerning the competitive environment. The firm carefully observes the competitors' Web sites, how they are designed, what services are offered and what differences could potentially make them successful. Wal-Mart's first Web site lacks many essential features and was not as attractive as those of its main competitors.

Only after a company's Internet strategy has been clearly formulated, can the company begin to focus on effective implementation through the design of the given firm's Web site. The appearance of the Web site is important because it will reflect the firm's image, and may often represent the only contact the firm will have with its customers. Therefore, an attractive, functional, effective, and fast-loading site remains as key elements to a successful online presence. However early on, Wal-Mart did not clearly state its objectives and strategy concerning its decision to go online. Wal-Mart's initiative of invading the Net was more due to their "jumping on the bandwagon" instead of a rational well-planned Internet strategy.

A retailer willing to achieve a competitive advantage through its online presence has to integrate the Internet into its core functions. Accordingly, the retailer is suggested to equally allocate its resources and capabilities among its departments. Wal-Mart did not quickly master or obtain the required skills in the field of electronic retailing. Consequently, Wal-Mart has undertaken several strategic moves to overcome such weakness and integrate the Internet into its competencies.

While online retailing may be different for different organizations, there may be some common caveats to Internet retailing. Dennis (1997) has identified ten basic truths of Internet retailing in order to prosper in the face of the competition. These points are summarized in table one.

WAL-MART'S ONLINE STRATEGY: STRENGTH OR WEAKNESS?

Wal-Mart's online strategy appears to be composed of two phases. One phase concerns WalMart's first entrance into the cyberspace, and a second phase concerns Wal-Mart's upgraded online strategy.

Phase 1

Wal-Mart started its e-commerce strategy in July 1996 by becoming a dot com competitor. Its first Internet experience was not as successful as the company had anticipated. Furthermore, WalMart's site has yet to contribute significantly to its revenue (Corral, 1999). The major problem faced by Wal-Mart was its Web site design. Wal-Mart's Web site appeared to be prehistoric and unaesthetic, lacking catchy colors and consumer appeal. The site also conveyed a sterile and impersonal shopping experience. In short, the site was too basic, it took a long-time to load the pages, and it did not leave a lasting impression in the users' minds.

The Wal-Mart site did not look as sophisticated as some of its e-tailer competitors such as Amazon.com. It appears as if Wal-Mart had underestimated this new distribution medium, which was the Internet. The corporation did not appear to be conscientious of the importance that ecommerce was representing or of the outstanding revenues that the Internet can generate. It seems appropriate to say that Wal-Mart started its online experience without really formulating a clear strategy. It was only concerned with having an online presence because almost every business had one, Wal-Mart did not consider it as an essential marketing tool for the future.

However, failure is the mother of success. Therefore, Wal-Mart is playing catch-up fast. Wal-Mart planned to revamp its web site by the beginning of the year 2000 and reformulate its online strategy; this is demonstrated through Wal-Mart joint ventures and key decisions for its online growth.

Phase 2

This phase characterizes Wal-Mart's willingness to reformulate its online strategy through significant alliances. Wal-Mart achieved its first alliance with Books-A-Million and Fingerhut in order to compete with Amazon.com. Amazon.com is a retailer that sells books and other products online. This virtual retailer is considered to be the closest competitor to Wal-Mart.com. By joining forces with Books-A-Million, the famous book retail chain, Wal-Mart is striking directly at Amazon.com's core competencies. Fingerhut will be responsible for processing and shipping online orders, which will allow Wal-Mart to deliver books, ordered via the Internet, to millions of Americans' doorsteps. (Vogelstein, 1999). Wal-Mart made this deal because delivering products to a multitude of customers has never been part of its competencies. The competition seems to be strong between top firms like Amazon.com and the Wal-Mart.com. For example, recent research consisting of comparing thirty items of Wal-Mart's site with thirty items of Amazon.com, has shown that Amazon is charging 28 percent more for its toys and 34 percent more for its books (Adamy, 2000).

Wal-Mart's other interesting move in its strategy was to create a stand-alone company with help from venture capital advisers, Accel Partners, forming Wal-Mart.com Inc., for online operations (Seipel, 2000). Through this initiative, Wal-Mart will be able to reduce the number of states and local governments from which it is obligated to collect sales taxes. The mission statement of WalMart's Internet strategy consists of taking advantage of its existing base of customers to prove to them the advantages of shopping at Wal-Mart.com. Meanwhile, Wal-Mart will encourage new online customers, without much Internet experience, to explore the new medium (Seminerio, 2000). For example, if a customer orders a picture disk from a brick-and-mortar store, Wal-Mart will give the customer free temporary online storage and reordering capabilities.

The Wal-Mart Internet Company will be based in Palo Alto, California. This will constitute an opportunity for the company. In fact, Wal-Mart will be able to recruit employees that have the skills required for the Internet field, due to its proximity to the Silicon Valley area.

Wal-Mart has good reasons for deciding to go with a venture partner. First, Accel Partner is experienced in building leading Internet businesses, which is something Wal-Mart seems to not have experience in. In addition, Accel Partner's reputation gives them the ability to attract very high-quality people who have relevant experience in Silicon Valley.

The redesigned Wal-Mart.com was launched January 1st, 2000 and it is now offering multiple products, features and services. It offers approximately 600,000 items and expects to add a pharmacy by the end of the year ("Wal-Mart to form dot com, 2000). Among the new offerings, Wal-Mart provides online travel services by offering airfare, hotel, and rental car booking capabilities. It also provides personalized e-business applications including shopping aides, store locators and maps, log-in profiles and a customized "My Wal-Mart" site which offers wish lists, gift registries, order tracking, a profile of historical purchases, a toy finder and a gift finder. At the same time, the site displays 40 specific product categories such as apparel, shoes, domestics, bedding, toys, sporting goods, optical, jewelry, electronics, cameras and appliances, paint, hardware, automotive, house wares (Collett, 2000).

Wal-Mart is also considering drive-through pick-up stations to allow online consumers to collect their online orders immediately from their neighborhood Wal-Mart. It appears favorable to personalize the site, which can constitute competitive strength. People who shop online appreciate signs of attention coming from the retailer. Because of the absence of contact while shopping online, retailers should provide some customization. As stated earlier, Wal-Mart appears to have decided to compete and win the "cyber war".

Wal-Mart's other potentially successful joint venture is one with the largest Internet access provider, America OnLine (AOL). This alliance will permit Wal-Mart to build its strengths by providing its customers with a low-price Internet access device, with which to access its own site and the services of AOL. By penetrating the mass-market via the Internet, Wal-Mart will significantly increase its advertising and at lower costs. Due to this agreement, millions of customers will be enabled to obtain affordable and convenient Internet service, thus providing access Wal-Mart's online store (Moin, 1999).

The agreement between Wal-Mart and AOL also appears to tie in the concept of leveraging resources argued by Hamel and Prahalad (1994). This concept argued that a firm's ability to leverage its resources could create a key to its competitive advantage. Concentrating resources, accumulating resources, complementing resources, conserving resources, or recovering resources are all ways a firm can leverage its resources for a competitive advantage.

Wal-Mart seems to complement its resources with those of America OnLine. This synergy includes aspects, such as the use of cross promotion to link Wal-Mart.com through AOL software. It also includes the leverage of store traffic by using radio, television, in-stores promotions and print advertising to promote both services, and the access to new market. It will also provide local Internet access to approximately 40 percent of the markets in which Wal-Mart operates, but where Internet access is not available by dialing a local number (Troy, 2000).

By teaming up with AOL and Accel Partners, Wal-Mart is conducting an excellent e-commerce strategy. Wal-Mart is poised to make a presence on the Internet, which is more worthy of the world's largest retailer than its past efforts.

Wal-Mart has closed other deals consistent with its strategic alliance Internet strategy. Kewill Systems, which develops software for managing supply chains, also made a deal with WalMart. Kewill Systems will provide Wal-Mart with a system that will allow it to track, trace and ship some of its highest value packages (Daniel, 2000). This initiative shows the willingness Wal-Mart has to provide the best customer service it can afford. It will also allow Wal-Mart to track expensive items returned by customers to a store. The Kewill system will permit expensive items to be bar-coded as they are delivered to Wal-Mart via the United States Postal Service

Another agreement is between Wal-Mart and Datacolor International. This firm is known for being a leader in color management and communications technology (Daniel, 2000). Wal-Mart chose this firm to provide the corporation, its vendors, and its suppliers with precise reproduction, analysis, manipulation, and communication of color data and images. This deal will allow Wal-Mart to offer the marketplace products with a higher level of quality at a faster pace.

CONCLUSION

Wal-Mart is willing to commit to e-commerce. For almost a decade, Wal-Mart has been the number one brick-and mortar retailer due to its lowest price strategy. Once the Internet emerged, as the new and fashionable channel of distribution, Wal-Mart decided to launch its web site. Unfortunately, its online presence was not as successful as its physical presence, and its site did not generate any contribution to its revenues. Thanks to the Wal-Mart culture of being a leader in whatever it undertakes, the corporation decided to review its Internet strategy by making several strategic alliances. By focusing on the mass population and providing them with low cost Internet access, Wal-Mart is willing to establish long-term leadership with its strategy to keep a linkage between its physical stores and its online site.

The outcome of the Wal-Mart strategy has not yet proved itself due to the short period of time that has elapsed since its last strategic move. However, its strategy seems to be consistent and future-oriented. Due to its brand name, which is clearly defined in the consumer's mind, WalMart.com can revolutionize the world of online retailing. Who knows, it might happen again and Wal-Mart will become the Wal-Mart of the Internet?

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Dale A. Henderson, Radford University

Houda Er-Radi, Radford University Table 1: Ten Basic Truths Of Online Retailing The Internet shifts power from the retailer to the individual: e-tailers must try to build an agency relationship and share information with the consumer. The Internet is a new channel of distribution. In this view, the Internet tends to separate the value-added operations from the distribution function. E-tailers should learn how to separate the value-added functions--such as merchandising, marketing, customer service, information management, and operations--from the distribution. Gross margins decrease: Huge competition existing in electronic markets stimulates the phenomenon of price deflation. Retailers must figure out how to eliminate costs from operations. A proactive Internet strategy is a necessity: Retailers are urged to more aggressively allocate money to an Internet strategy if they do not want to loose the war. Competition is accelerating: There are no square-footage limitations in cyberspace. Each retailer is allowed to have an infinitely large store which increases competition dramatically. Shopping in the traditional manner will continue, but only moderate Internet success from your competitors can kill your traditional retail store profitability. Traditional retailers must consider the impact of the Internet and its consequences on their businesses and foster an appropriate Internet strategy to embrace this new way of doing business. Management is the key: Success lies in effective execution with fresh and entirely different management perspectives which will fit with the changes in the environment. The Internet represents unparalleled opportunities for retailers that are swift to change their way of thinking to adapt this unique distribution channel. Adapted from Dennis (1999)