Wal-mart Shifts Focus to Online Sales – Warns Investors of Rough Patch

walmart focus on online sales

Wal-mart Stores Inc. has had a long track record of success with its massive supercenters across the country.

But as consumers’ interests change, the retail giant is realizing that it needs to change its approach. Shoppers are spending more time buying online and less going to large superstores – so Wal-mart needs to follow the trend. 

Wal-mart shifts to online sales. In the coming years, Wal-mart is expecting patience from its investors as it tries to refocus its business model on online sales. The company discussed this shift in strategy, current earnings and predictions for future revenue in a recent message to investors. Even though the online sales division continues to generate operating losses for the company, the company is betting that the investment in web sales could pay off. Its yearly e-commerce sales were at $10 billion in 2013, but are estimated to be $35 billion by 2018.

A strategic plan. That’s a significant expectation for growth, but Wal-mart has a strategic plan in place. A major keystone of their online strategy includes price matching their online competitors – including Amazon.com Inc. This holiday season they are testing a program to match online prices, which may garner more sales but will also cut into profits.

Executives are still discussing whether this is the right move, and whether the program will be moved to brick-and-mortar locations if it is successful online. According to inside sources, they are evaluating how much the company could lose if the program expanded to nationwide status before making their final decision.

Competitors are matching prices. Competitor companies Best Buy Co. and Target Corp. have both had success with price matching programs. They adopted the practice in order to minimize “showrooming” – a tendency for consumers to come into a brick-and-mortar store, comparison shop and then purchase items online if the price is lower. Up until now, Wal-mart has resisted the industry pressure because being the low price leader was enough to avoid showrooming.

However, competitors are getting better at competing with the discount store giant. It gained its reputation as a low price leader, but dollar stores, online retailers and even local brick-and-mortar competitors are inching closer. For example, a basket of goods at Wal-mart is now 1.2% cheaper than the same items at Target. This is the smallest price gap between these two stores since 2012, according to the consulting firm Kantar Retail.

Wal-mart considering price-matching too. Because of this, Wal-mart is seriously considering price matching – and has come into close proximity to Amazon’s prices. According to Wells Fargo and the pricing firm 360pi, Wal-mart had prices on par with Amazon’s for December 2013, January 2014 and February 2014. In August, Wal-mart had lower prices than Amazon’s by 10%.

In order to hold its position strong throughout the holidays, it plans on eliminating shipping fees, and are guaranteeing deliver by Christmas Eve for a select group of 100 of their most popular products. This group includes Disney Frozen toys and Lego products.

In early November, the retailer kicked off its holiday discounts in the stores for over 20,000 products. Online, they are planning to offer 15 internet-only “Black Friday” specials on products including NutriNinja Pro Blender and Element 30-inch HDTV.

Forecast cut. Even though long range predictions are strong for the online division, Wal-mart cut its forecast for the current fiscal year down from 3% to 5% to 2% to 3%. They noted that lower food-stamp payments and a stronger dollar accounted for the lower prediction. Both of these factors erode the gains garnered from sourcing and manufacturing overseas.

Chief Executive Doug McMillion told investors that taking a long term view and having patience will pay off in the long run. They also noted that there’s a tougher-than-expected sales environment and a general weakness of the economy that has contributed to the current earnings and growth.


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