Wal-Mart Anxious to Combat Amazon’s Lead in Web Vendors
Wal-Mart Stores Inc. (WMT) is “anxious” to take on Amazon.com Inc.’s Marketplace, where independent merchants sell millions of products.
According to minutes from a Feb. 1 officers meeting led by U.S. Chief Executive Officer Bill Simon, Wal-Mart considers Marketplace Amazon’s “number one weapon.”
“This is an area” Wal-Mart is “anxious to compete in,” according to the minutes, which were obtained by Bloomberg News. Participants at the meeting also focused on the savings Amazon has captured by offloading shipping costs to its army of independent sellers.
Four years after starting its own version of Marketplace -- called Marketplace -- Wal-Mart has signed up six outside merchants, including one that sells sports memorabilia. Amazon has 2 million that sell everything from clothing to mobile phone cases. More and more Wal-Mart customers are shopping at Amazon, according to research and consulting firm Kantar Retail. Yet Wal-Mart continues to pour capital into its brick-and-mortar operations. This year the world’s largest retailer plans to open about 130 supercenters, which Simon called Wal-Mart’s “primary growth vehicle” in an earnings call last month.
“I can think of better investments for the long-term when this is 2013 and the biggest competitor is Amazon (AMZN),” said Leon Nicholas, Kantar’s Boston-based senior vice president. “I don’t think there’s anyone who would argue that the supercenter is the store of the future.”
Retailers from Wal-Mart to Sears Holdings Corp. (SHLD) to Best Buy Co. are struggling to re-invent themselves as consumers increasingly shop on the Web. U.S. online sales grew more than 17 percent between 2011 and 2012, more than four times faster than overall retail sales, according to Kantar.
The minutes of the Feb. 1 meeting show how closely Bentonville, Arkansas-based Wal-Mart is monitoring its Seattle- based rival. In a section headed “Amazon Update,” the minutes said the online retailer’s competition was “getting better” and that EBay Inc. (EBAY) and Google Inc. (GOOG) were ramping up their efforts to take on Amazon.
David Tovar, a Wal-Mart spokesman, declined to comment on the contents of the minutes, while Ravi Jariwala, a Wal-Mart spokesman based in San Bruno, California, said the company was taking a “thoughtful approach” to its Marketplace strategy.
Pia Arthur, an Amazon spokeswoman, didn’t return e-mails seeking comment.
In the fourth quarter of 2012, 53 percent of Wal-Mart customers said they also shopped on Amazon, compared with 47 percent a year earlier, according to data from Kantar. Six years ago, only about a quarter of Wal-Mart customers shopped at Amazon.
In the past five years Wal-Mart shares have gained 45 percent, while Amazon has more than quadrupled.
More than 12 years after opening its Web store, Wal-Mart generates about $5.15 billion, or 2 percent, of its total annual sales online, according to Kantar, which is based in London. Amazon’s North American sales last year: $34.8 billion.
In an interview, Jariwala defended Wal-Mart’s emphasis on supercenters, saying that the locations double as distribution and pickup centers for merchandise bought on the Web. Half of orders placed online are picked up at the stores, which saves on shipping costs, he said.
Wal-Mart opened its own version of Marketplace in 2009 yet “most people don’t even realize it exists,” said Nicholas.
Jariwala acknowledged Wal-Mart’s reticence to promote Marketplace and said: “We need to make enhancements and improvements to our e-commerce platform first.”
While he said Marketplace is “a big part of our expansion,” Jariwala declined to say how many merchants will be added or what they’ll sell. Wal-Mart’s third-party merchants include eBags, Shoebuy.com and ToolKing.com.
“We are very selective,” he said. “We choose merchants with high-quality products and high-level customer service.”
Matt Nemer, a senior analyst for Wells Fargo Securities, said the breadth of products is what drives shoppers to Amazon.
“Amazon will take anything as long as it’s legal,” said Nemer, who is based in San Francisco, while Wal-Mart has “sensitivities” about signing vendors that will compete directly with it.
In recent months, Wal-Mart has been adding thousands of so- called consumables to its website -- items such as cereal and pet food that shoppers buy routinely, said Anne Zybowski, who directs research on Amazon for Kantar. Wal-Mart may be gearing up to borrow another part of Amazon’s strategy, a subscription service that allows consumers to have products automatically delivered on a regular basis, she said.
Amazon debuted its Subscribe & Save service almost six years ago. The innovation is a direct assault on Wal-Mart supercenters, which have long carried consumables as a way of getting shoppers to visit once or more a week.
“Like Wal-Mart of the ’80s or ’90s, this is the new one- stop shop,” Zybowski said. “People don’t want to deal with items they know they have to replenish.”
Part of Wal-Mart’s challenge is that the more people shop its website, the less they’ll visit supercenters, she said.
Still, “it’s better to cannibalize themselves than have those shoppers go to Amazon.”
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