Why Wal-Mart Is Worried About Amazon?

Five years ago, the world’s largest retail chain didn’t have to worry much about the world’s largest online mall. Only about a quarter of Wal-Mart Stores (WMT) customers shopped at Amazon.com (AMZN), according to data from researcher Kantar Retail. Today, however, half of Wal-Mart customers say they’ve shopped at both merchants. That’s leaving the mega-retailer—which long ago bested local brick-and-mortar merchandise stores and supermarkets across America—with a massive online competitor that is too tough to ignore.

Threatening Wal-Mart’s dominance are two trends: The discounter’s traditional customers—bargain hunters making less than $50,000 a year—are getting more tech-savvy, and more-affluent shoppers who began frequenting Wal-Mart during the recession are returning to Amazon as their finances improve. Amazon has moved into merchandise categories that Wal-Mart traditionally has sold, from diapers to vacuum cleaner bags. In its last fiscal year, Amazon posted 41 percent revenue growth, to $48.1 billion, vs. 8 percent at Wal-Mart. The chain’s 2011 online sales amounted to less than 2 percent of its $264 billion in U.S. revenue, says Kantar. “Amazon is always in our sights,” says Jeremy King, chief technology officer at the retailer’s @ WalmartLabs skunkworks in Silicon Valley. “My biggest issue is playing a catch-up game.”

In the last year Wal-Mart has increased its investment in its online business. The company has spent more than $300 million acquiring five tech firms since May and hired more than 300 engineers and code writers in the U.S. and India. Wal-Mart is also launching a program to allow the 20 percent of its customers without credit cards or bank accounts to make online purchases.

Wal-Mart’s acquisitions include Kosmix, a social-media firm, and iPhone app creator Small Society. The company hopes the newcomers can find a way to stop shoppers from engaging in scan and scram. That’s when would-be customers use their smartphones in stores to scan an item’s bar code and then buy it online from a rival merchant. The chain’s tech team also is working on a concept called Endless Aisle, which would let shoppers immediately order from Walmart.com via smartphone if an item is out of stock. “You can’t ask people to leave their phones at the door. So you have to give them value and an experience,” says Venky Harinarayan, @WalmartLabs’ senior vice president of global e- commerce. The former Amazon executive joined from Kosmix.

Wal-Mart is trying to improve links between its store inventory, website, and mobile phone apps so that more customers can order online and pick up their purchases at stores, which half of Web customers do already. Wal-Mart is trying Web-based shopping tactics, like its Pay With Cash program for Wal-Mart customers who don’t have credit cards. The new program allows them to reserve products online and pay cash at their nearest store. To cater to its affluent customers, Wal-Mart is selling more expensive items—for example, high-end televisions from Sony (SNE) and Samsung—only online.

Harinarayan’s team is also trying to tackle a new problem for Wal-Mart. Last year the chain was the No. 1 destination for holiday shoppers, with 53 percent of U.S. customers visiting its stores. That was down from 59 percent the year before. To lure gift shoppers, the techies have developed a Shopycat feature that scans the social media preferences of a consumer’s Facebook friends and suggests gift ideas sold on Walmart.com. About 150,000 users have installed the app.

To roll out more such innovations, Wal-Mart must improve its in-house e-commerce technology, so King will hire 87 engineers and coders to bolster the links between the stores and the website. “We’re starting from scratch to build a foundation,” says the EBay (EBAY) veteran. “Ideally, we’d have this platform built a couple of years ago.”

 

The bottom line: Wal-Mart, which gets less than 2 percent of its U.S. sales online, aims to bolster its technical capabilities to compete with Amazon.

 

Look customers in the eyes to lock them in the aisles.

Shopkeepers adopt the hard sell with some tailored software, writes Mark Russell.

IN THE film Minority Report set in 2054, a brewer’s advertising billboard identifies Tom Cruise’s character, John Anderton, through a retinal scanner. As he walks past, the billboard calls out: ”John Anderton! You could use a Guinness right about now.”

Far-fetched? Not according to retailers who believe this type of targeted advertising may well be the future of shopping.

New York company Immersive Labs is already using built-in cameras and facial recognition software in its outdoor billboards to determine the gender and age of passers-by so it can customise the advertisement on display to suit them and prompt sales.

So if a man strolls by on a cold morning, the display might change from an ad for women’s clothing to an advertisement suggesting a cup of coffee at a nearby cafe.

As Australian online shopping – expected to be worth $21.3 billion this financial year and $30.8 billion by 2015-16 – continues to threaten bricks-and-mortar businesses, retailers are using the latest technology, combined with social media, including more shopping apps, to lure customers back into their stores.

German shoemaker adidas is planning to install touch-sensitive display walls in stores from next year. The virtual footwear wall will allow customers to view the company’s entire range of 4000 pairs of shoes. If a customer likes a particular shoe the store will order it in.

Two cameras above the screen will watch shoppers’ reactions to determine which shoes are most popular. And like other companies, adidas is also gathering feedback by encouraging customers to use Facebook and Twitter to review its products.

Brisbane company Yeahpoint believes its MiMirror creation is the missing link between instore shopping and social media that will revolutionise fashion retail.

MiMirror is a touch-screen display with a camera that acts as a mirror and takes up to six photographs of customers in outfits they are considering buying. The shoppers then email the images to friends or post them on Facebook to get a second opinion.

No retailers have installed the technology yet, but the company is confident major stores will buy the device in coming months.

”The factors driving retailers’ decisions for the future are basically that the cost of business continues to increase and competitiveness in the retail environment is being challenged by the online market,” Yeahpoint’s John Anderson says.

”On the flip side, you have the time-poor consumer who wants to have a much more friendly, fun shopping experience.”

Sean Sands, of Monash University’s Australian Centre for Retail Studies, agrees, saying many consumers are bored with traditional retail and the only way to lure them back into stores is to offer the latest technology linked to social media.

A recent report released by the centre found that online shopping was creating tougher in-store customers because they were ”better informed due to the power of the internet”.

Half the population now research their purchases online before setting foot in a store.

Many are also armed with a wide range of shopping apps that can be downloaded on to iPhones, iPod Touches, iPads and other tablets and smartphones, that allow them to hunt for the best deals.

The RedLaser app, for example, allows instore shoppers to scan the barcode of an item to get the price and then checks online to see if it’s cheaper elsewhere.

Supermarket giant Coles’ ShopMate app, which notes specials and lets you cross off your shopping list as you go, has been downloaded 400,000 times.

Rival Woolworths does not have a shopping app but has one to locate missing trolleys.

Woolies’ app-lessness is not likely to last, however, as retailers respond to consumer demand.

Russell Zimmerman, of the Australian Retailers Association, says ”every retailer has to be in the online space in the foreseeable future” or they won’t survive.

According to PayPal, 8 million Australians buy goods using the internet, and one in 10 buy them with their mobile phones.

Google Australia’s head of retail, Ross McDonald, says this increasing use of mobile phones to search for stores and products has become a noticeable trend in the past six months.

Previously, 95 per cent of online traffic for shopping searches was from computers but 16-18 per cent of online inquiries were now from mobile phones. ”What we advise retailers is that it’s not so much about the app but making sure you are visible on a mobile device when someone searches for you,” he says.

Jo Lynch from Myer – which has an iPhone app that lets you peruse and buy goods with a tap of your finger – says the company expects its online business to generate sales of $5 million for 2010-11 and be worth up to six times that in the next few years.

David Jones’ Brett Riddington says the future of shopping is all about multi-channel retailing. ”Many customers will still want to go in-store to physically see the goods after checking them out online, but we need to make that a more entertaining and engaging experience,” he says.

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