Missing The Mark

Walmart Offers Cheap When People Want Easy

These paltry online savings just come out in the wash for most people.
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Wal-Mart Stores Inc. on Wednesday unveiled a new discount program to entice customers to pick up online orders from its stores. The idea is: If it's cheaper for Walmart to get stuff to its 5,000 stores, rather than millions of individual households, than why not pass along part of that discount? It has the extra benefit of getting customers back into stores to buy more. 

Walmart's plan makes great sense in theory. I'm just not convinced it jibes with how consumers think these days.

Playing Catch Up

Walmart shares rose 6% in the last year, but it's still trailing the rise in the S&P 500

Source: Bloomberg

In an era where Amazon.com Inc. has trained shoppers to be so lazy that they can order cardboard boxes and packing tape an hour before they are ready to pack up their goods and move to another apartment, it's unclear consumers are going to want to work that hard just to save Walmart, and themselves, a buck or two. 

Internet Overlord

Amazon made up more than half of all retail e-commerce sales growth in 2016

Source: EMarketer Inc.

The reason why shoppers keep going back to Amazon, which now controls about half the growth in the U.S. e-commerce market, is only partly about low prices, where Amazon is often not the leader. It's for the ease of ordering, shipping, and delivery. People are now conditioned to pay for convenience. 

Amazon Addiction

Share of primary household shoppers who shopped at Amazon or Walmart

Source: Kantar Retail ShopperScape

Note: Share of shoppers who shopped Amazon or Walmart at least once in the previous four weeks

Which is why Walmart's discount plan seems so out of touch. The scheme reminds me of my leadership courses at business school, which taught students theories of how companies are supposed to be run. You'd get all jazzed up to go implement these best practices, in B-school parlance, but reality hits when you arrive in the workplace. You can just picture the Walmart executives nodding favorably to a Power Point presenting the newest discount program. 

There's is certainly a subset of shoppers who will spend the time to save money. These are folks who clip coupons, subscribe to email lists, and order in bulk to squeeze out savings.

In fact, that's the entire premise around the hot bargain shopping app Wish, which promises dirt-cheap, unbranded items for shoppers willing to wait as long as a couple of weeks for delivery. The difference is, Wish's focus on personalization, customer service, and ease of use makes up for the wait times, which the company is also working on reducing. 

For many of Walmart's low-income customers, every penny counts. But the retailer has said one reason it bought Jet.com last year was that Walmart's online customers tended to be wealthier shoppers who would spend more for the higher-end brands Jet.com could offer. If that's the case, than it seems Walmart is targeting the wrong audience with its discount program.

On the other hand, if Walmart hopes to attract its lower-income customers to shop online, any savings from the discount program may wash out when factoring in rising gas prices and transportation costs to get to a physical store. 

As I wrote last September when Walmart bought Jet.com, real competition against Amazon will come down to a relentless focus on pleasing customers, not just pushing up profits. 

Growth Spurt

Walmart's Jet.com purchase boosted U.S. e-commerce sales, which rose 29% in the latest quarter from a year ago. But poor overseas sales dragged down total figures.

Source: Bloomberg, Walmart

It's one of the reasons the complicated way Jet.com prices items still seems so puzzling to me. Customers save money by jumping through a series of hoops when they make purchases -- bundling on extra products, paying with a debit card, and the like -- and this helps Jet cut costs. The real beneficiary here seems to me to be the company, not the shopper.

It can't hurt for Walmart to try the discount program out -- testing and learning about what its customers want. But it will likely realize that instead of trying to figure out how to make things easier for Walmart, it should worry more about making things easier for people to shop with the retailer. If not, any advantage Walmart is building online will have a short shelf life. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shelly Banjo in New York at sbanjo@bloomberg.net

    To contact the editor responsible for this story:
    Jennifer Ryan at jryan13@bloomberg.net

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