Will Walmart.Com Get It Right This Time?

After four years of false starts, the retailer needs to prove it can master the Web

When Walmart.com warned visitors in late September that the online store would close several weeks for remodeling, some Web watchers scratched their heads. Other e-tailers managed to run their old sites while preparing new ones--why not Wal-Mart Stores Inc. (WMT)? The huge discounter seemed to be handing its online rivals a golden opportunity. The latest Walmart.com incarnation will be launched before the peak of the Christmas shopping season without a splashy TV ad campaign, and shoppers won't find such bells and whistles as personalized promotions or 3-D graphics. Amazon.com (AMZN) "couldn't have scripted a better story for the holiday season," says analyst Emme P. Kozloff of Sanford C. Bernstein & Co. "The evil Wal-Mart grinch will not steal Christmas at all."

After more than four years of false starts, is Wal-Mart losing its zeal for the Web? Such a shift might be understandable, since e-tailers seem to be falling by the wayside while Wal-Mart's real-world stores keep chugging along with double-digit sales and earnings growth. But rivals who mistake Wal-Mart's slow and steady approach for a lack of commitment will be sorely disappointed, insists Walmart.com CEO Jeanne P. Jackson. She dismisses any suggestion of cold feet at Wal-Mart's Bentonville (Ark.) headquarters. In a refrain that's often repeated at her own Menlo Park (Calif.) offices, Jackson says: "This is a marathon. It's not a sprint."

That's not to say that Jackson, the former CEO of Gap Inc.'s (GPS) Banana Republic unit and head of Gap's online efforts, hasn't been doing plenty of sprinting since arriving at Walmart.com in April. The now separate company, formed by Wal-Mart and venture-capital firm Accel Partners, is scrambling to assemble a retail- and tech-savvy management team while building a reliable technology platform based on assets acquired from the now-defunct HomeWareHouse.com. Taking the site down for several weeks made it easier to overhaul the system's front and back ends and to transfer mounds of inventory data, Wal-Mart says. At the same time, Jackson is trying to blend the best of the $195 billion retail goliath with the 180-person online startup.

"NOT TERRIBLY SEXY." The failures of rivals ranging from cosmetics e-tailer Eve.com to name-your-price discounter WebHouse Club have certainly eased the pressure to deliver fast results. And the online efforts of big-store retailers like Sears Roebuck (S), Kmart (KM), and Target (TGT) are still in their infancy. Jackson nonetheless faces huge challenges. For starters, she must prove that Wal-Mart can serve up a reliable, easy-to-use Web site with flawless shipping and customer service. Last year, Wal-Mart, the king of store logistics, was forced to warn online customers that it couldn't guarantee Christmas delivery of goods ordered after Dec. 14. And an expanded site that debuted in February was widely panned for its cumbersome design, slow downloading time, and poor search engine. In September, it ranked 47th out of 50 retail sites based on the number of visitors measured by Media Metrix, part of Jupiter Media Metrix.

Will Wal-Mart get it right? A recent preview of the site showed a "very streamlined and intuitive layout" and a much-improved search function, says analyst Bill Dreher of Robertson Stephens. Walmart.com Creative Director Erik Hagerman says he took his cues from Wal-Mart's easy-to-use supercenters, with their wide aisles and plentiful signage. "This is not a terribly sexy home page," he says, "but it will load like lightning." Indeed, Wal-Mart CEO H. Lee Scott Jr. insists that the focus for now is on reliability: "We care about the numbers, but the primary concern this Christmas has got to be customer service and establishing a base that you can build on in the future."

If Wal-Mart stumbles again this holiday season, it will hardly be a financial disaster. After all, online sales are still a tiny part of the retail industry--2% in the fourth quarter, according to one estimate. Analysts say Walmart.com is investing about $100 million this year--compared with $8.5 billion that Wal-Mart plans to spend next year on store expansion. Still, says Jupiter analyst Ken Cassar, if Wal-Mart fails again, "they will have missed a substantial opportunity. The online-only retailers are by and large strapped for cash."

Indeed, Wal-Mart's staying power has suddenly become a big draw in the online world. James W. Breyer, managing partner at Accel Partners, which holds a 20% stake in Walmart.com, says he intends to build up the site's capabilities by purchasing other online outfits and has been getting a dozen calls a week from hopeful candidates. But to take advantage of this shifting landscape, Jackson must maintain the attention of executives back in Bentonville who are keenly focused on expanding Wal-Mart's bricks-and-mortar stronghold and fixing problems in its fledgling foreign-store operations. As a result, one major supplier claims, Jackson is "often getting compliance but not passion" from the staff back at the mother ship.

Jackson insists that's not the case and that she's getting plenty of devotion, especially at the top: "I don't think we've met anybody who's what I would call a blocker." Wal-Mart CEO Scott and Chairman S. Robson Walton sit on the four-person Walmart.com board. They attend monthly meetings and call or e-mail Jackson and Breyer, the other two directors, every few days. Jackson's team also meets regularly with lower-level executives, such as six district managers who help coordinate the transfer of "Wal-Mart DNA," she says.

That melding of "bricks and clicks" is now considered the best route to Web profitability. But it demands innovation and seamless execution. Walmart.com's first mistake last year was to try to mimic the stores, offering a jumble of product categories and selling items that simply weren't economical online. Back then, it couldn't promise last-minute deliveries. A leader in delivering truckloads of goods to its stores, Wal-Mart wasn't adept at handling individual packages. Adding to the problems, Wal-Mart and outside fulfillment vendor Fingerhut didn't properly integrate their information systems. Some customers were told that goods were in stock when they weren't, and vice versa.

New Chief Logistics Officer John Rittenhouse, formerly of LVMH (LVMHY) and Target, is in charge of making sure those nightmares aren't repeated. Walmart.com is still using outsiders for fulfillment--Fingerhut and newcomer Airborne Logistics Services. But in time, Walmart.com will take control with its own dedicated distribution centers. Rittenhouse contrasts that gradual ramp-up to Amazon.com Inc.'s expensive effort to build distribution capacity well in advance of demand. Amazon.com spokesman Bill Curry responds: "The proof of the pudding was last Christmas. More than 99% of our orders were delivered on time."

Jackson, meanwhile, is lopping items off Walmart.com's 600,000-product offering. She keeps a 25 cents plastic cup in her office--whose cost of two-day shipping was $8--as a reminder of what doesn't work. At the same time, she's looking for opportunities to extend Wal-Mart's reach in such categories as patio furniture and appliances--products that take up a lot of floor space in stores.

Because her online customers are seeking convenience as much as low prices, Jackson will also focus on creating new services. For instance, sometime next year, Walmart.com should be able to offer online listings of real-time inventories in individual stores. Customers could then decide whether to head to the store or buy it online. Also on her to-do list: a system for ordering virtually any car tire online, while allowing customers to schedule a store visit for installation. And Walmart.com has joined up with RealNetworks Inc., an Accel-backed company, to create a system for easily downloading music. That could be crucial to protecting Wal-Mart's huge in-store sales of music. "If we're not fiGoring out how to be part of the new way music is delivered to customers," Jackson says, "then I think we're going to be caught flat-footed, and that's something Wal-Mart never is."

Few rivals profess to be worried about Wal-Mart's moves on the Web. In fact, Mark H. Goldstein, CEO of Kmart-backed BlueLight.com, says he's rooting for Walmart.com: "It will convince people that big-box retail is how you should buy online." Goldstein, of course, is already a believer. But many others are waiting to see if Wal-Mart will be a winner in this marathon.

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