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6 -1

Case 6

Wal-Mart Online-What to Do about Amazon.com?

Richard B. Robinson Jr. and John A. Pearce ll

While the "online thing" has been exploding worldwide in the last l-5 years, the world's
largest retailer, Wal-Mart, has until recently not even broken out its online sales, prel'er-
ring instead to look at overall sales and at the growing trend of shoppers ordering using its
raiher simple online site and picking up in its tl'rousancls of stores. And why not? Wal-lr4art
will exceed a half-trillion in sales this year. As the rvorld's largest retailer and the United
States' largest employer, it has reason to preserve and grow its concept ofsell everything to
everyone, close by. Consider these facts:
. Wal-Mart will soon reach 5,000 stores in the United States alone.
. Two-thirds of the Unrted States population live within 5 miles of Wal-Mart stole. a

' Its global presence, particularly in Asia and Central America, is rapidll, expanding or-
ganically and through acquisition and joint ventures.
. Its global supply chain skills and resulting pricing power are unrnatched.
. Its move into groceries has been quite successful in the United States and elsewhere.

Still, Wal-Mart's executive team is asking the question, "What's with this Antazon.com
thing?" Amazon.com sells much of what Wal-Mart sells, other than groceries. Rumor has
it thgy are looking into that. Amazon.corn has gone from modest sales to almost $75 billion
in2013, steadily growing. It is even moving toward store locations via "locker" relationships
with other former competitors, like Staples, which will have Amazon lockers in their stores
for Amazon customers to pick up the things they have bought. Meanwhile, Amazon's ever-
expanding customer base seems to do so because of the convenience of looking, clicking, and
having it come to their front door without getting out of the house, into a car, and so forth-to
the tune of, real soon, $100 billion annually. Yet, the Wal-Mart executives no doubt ponder,
while they have long been the retailer of choice fbr the price-conscious, convenience-seeking
customer, why do they only have $9 billion in sales tl.rrough their Web site offering essentially
the same products? What have they done wrong'? What can they do to right it? How can they
grab back a big chunk, say $50 billion, o1'the sales of "their things" that have gone tlrrougl.r
Amazon.com, instead of Wal-Mart or rvwrv.rvahnart.corn? Neil Ashe, CEO of \Val-Mart's
e-commerce unit, said in 2013 that "we can build e-corlmerce equivalent to anyone in the
rvorld." Mixing the coupany's expanding online capabilities with its knowledge from run-
ning stores for 50+ years "creates a comrnerce experience that no one else can do." While that
may be so, $100 billion versus $9 billion still legitimately calls the question.
What would you advise them to do to solve this "problem"? Should they not bother
with it; and instead continue rvith u'here they have long been ---consider the online thing a
fad; have and improve their \Veb site, but continne to builcl rnore stores, increase locational
convenience, and keep priccs lorv r,,,ith unniatched selection? Or should they ageressivelv
attackArnazon.cont, build not only their \\'eb site but o(her u,ays to sell onlirre and support
online sales'l What shoulcl they do?
Wal-lr{art executives seellt to have soughl to do botl.r. conlinuing u,ith the latter strntegl,
\\'hllc expallding their tiptoeing ittlo Anuzon.conr s space. Executives fhr,oring ntore than
the tiptoe approach have proprist'.d thc lollori,inq taulics:
6-2 Case 6

The Lockcr Tuctic. This iclea is to have spccial lockers in every Wal-Mart \tot'e-a
custonter bLrys sortrcthing onlinc, selects a Wal-Mart (or Sanr's) store closest to thcttl
(re rtre ntber tlrc -5-ntile proxinrity thing), and can stop by that storc to clreck rvith tlrc cus-
t<irner service desk and pick up thc purchase for a quick in-and-clLrt purchasing l)rocess.
Wal-Mart's supply system, JIT capabilities, and point-ol'-sales linked with distribution
systent capabilities nte:ut it can do this without any additional net costs on its ertd-the
rcsult is more sales, custorner convenience, and increased incrernental prolit . . . ttttcl one
less Amazon.corn custorner.
Wal-Marr thinks its network o1'physical stores, rnan'ied with custorlers increasirtgly
using srnirtphones as they shop, will easily drive thern to use the locker l'ulllilrttent op-
'l'hat
tion, cornpeting in the process with Arnazon's successlul Prinie subscription servicc.
service gives l'r'ee trvo-day shipping anywhere in the United States fbr'$79 per year.
Z. The Online Grocery Purchase and Delivery Selvice Offering. Wal-Mart is experittrettt-
ing at several stores with grocery offerings whereby cLlstomers can el.Iter their grocery
lturchases online, pay online, and have those purchases delivered directly to their lrrluse
or other indicated location by Wal-Mart grocery delivery personnel. They envision a
rlinirnurn purchase total that would avoid any delivery fee; or otherwise have a trtorlest
fee ilpurchases lall below that rninimum. The executives advocating this idea say it can
use the existing www.walmart.com site setup; that it fits rvell with the 5-rrile proxim-
ity to every Wal-Mart customer from a cost control point of view, and starting it *,ith
groceries makes it a regular purchasing activity with regular custollers to build a stead)'
pattern of purchasing over time that could expand frorn groceries to other items rtrucl't
like what they would otherwise buy from Amazon.com.
3. Create a "Wal Mart to Go" Service, Partnering with FedEx or UPS. Here \4/al-lr4art
r.vould partner r.vith one or both ol these well-known delivery services to have items
bought online tiom walmart.com delivered in metro areas to the purchasers. The idea
here is to essentially match what Amazon.com now does with the same services and
have packages at key Wal-Mart distribution centers close to major urban areas routed
into this delivery system much like Amazon.com now does. Wal-Mart executives advo-
cating this approach now have five experimental sites in major U.S. cities experinrenting
with this idea.
4. Crowdsourcing. Have regular Wal-Mart customers offer delivery services to f'ellor.r' cus-
tomers. Wal-Mart executives, starting with U.S. CEO Joel Anderson, were consiclering
an idea that rvould have Wal-Mart junrp into the rniddle of the global "cro*,dsour-cir.rg"
or "sharing econoury" phenomenon by letting its customers that rvant to eanr a little
extra income offer to deliver purchases to other customers from stores the delivercr fre-
quently goes to anywa)'. So, under this idea, you regulerly come to Wal-lr'{art stol'c XXX
to make item or grocery purchases; then you could register as a deliverer to custonters
in the area rvhere you reside. Then, you pick up your purchase plus a set o1'packlges
for other customers in your l.rorne destination area. You deliver their packages to lltent
directly and receive ctrsh or store credit frorn Wal-Mart for doing so. Wal-N4art has mil-
lions of custonrers visiting every store each rveek. Some of tlrese shoppers coLrlri tell
Wal-lvlart rvhere they live and sign up to dlop off packages for or.rline custonrcls ri'hcr
live on their route back home, according to Mr-. Anderson. Wal N4art u,oulcl ol'ttl l e leclit
or something siruilar-. r.r"l.rich rvor-rld, in effect. cover their cost of coming to Wal-N.lart
to shop. Andersitn sees this as just tappirrg into a rnajor: trend irnfirldin-g in the ''slrLring
cconor.r.r-v" rvhere ventures likc Ziprnents, TaskRabbit, Irir,err, arrd Airbrth are.itrst rL l'en'
that let indivicluals l'ent out their tin-re, their car, their hor"rse or expertisr:. lookiur lrrr a
Iittle ertra inctrnrc u'hile using the tinre, car. or hornc thcy alreucll'os n to tlo so.
 l4hl-MarI ()ttIiru:*\4/hal Io Do rLltouI Arrtttzttrt..t:ont'/ 6-3

Wal-Mart CEO Joel Anderson positecl, regardless of the option, that all have a core advan-
tage. "lt is really eflcient to usc our stores. We've been picking and putting itcnrs in boxcs
lbr years." Continuing, "Ship to or fionr the store is no difl'erent. We are.just picking items
ol'1'the slrelves and putting thern in a box."
So, Wal-Mart executives look to you lirr advice. They realize you are a part of the gen-
eration more cornfbrtable with what Anrazon.corr ofl'ers, with aspects o1' sorne ol'these
options, and yet you know Wal-Mart. What would you advise them to do in order to rnean-
inglllly rnake a dent in the online sales Anrazon.com "takes away" from Wal-Mart? Would
you doall ol'these options, or just sonre of thenr? il'rnore than one, which would you priori-
tize as most irnportant? What potential revenue possibility would you expect within three
years from the ones you think best? What pros and cons would you see with each option?