What Walmart Can Teach Distributors About eCommerce

A few years ago Walmart was “challenged” in eCommerce.  The world’s largest retailer was being challenged by Amazon, although the two were in different segments of the market. Walmart dominated the “physical” market, Amazon the online market, however, the eCommerce market was growing at a much more rapid rate.  Walmart made the determination that it wanted to compete in the online space.

While it was successful in eCommerce from a dollars viewpoint, after all, when you’re that big, a small percent of a large number is large, it was not a significant player in the online world from a percentage viewpoint. It wanted that to change.

Walmart’s advantage is that it has money.  Having money enables a company to make investments that may not be perceived to be rationale, but it jump starts initiatives.

Enter Walmart’s acquisition of Jet.com

Jet.com, started in New Jersey, was started by some smart eCommerce people who had experience in retail. They designed a different model, similar to a warehouse retailer (think Sam’s Club) but, the key is hiring really smart people.  And they raised private equity money.  There was lot’s of media fanfare. They launch and … shortly thereafter along comes Walmart who acquired them for $3.3 billion dollars!

Remember, Walmart has a lot of money.

The acquisition showed that Walmart was serious about eCommerce. Part of the rationale at the time, as mentioned in the press release was to “infuse Walmart with fresh ideas and expertise.”

Since then Walmart has made a number of more conventional eCommerce acquisitions. These have been other online retailers. Some deals work, some don’t, but the Jet.com personnel, which Walmart bought, have powered an eCommerce strategy.

Walmart eCommerce Results

Walmart released it’s Q1 results last week and shared it’s eCommerce performance … and made a change with Jet.com.

• Overall, for the quarter, Walmart US comp sales, excluding fuel, were up 10% for the quarter
• eCommerce sales for Q1 were up 74% and the product mix improved which improved this businesses profitability
• Part of Walmart’s eCommerce initiative is a marketplace. Marketplace growth outpaced their overall business even as “first party” sales were strong
• Walmart commented that its “increasingly seamless omni-channel customer proposition is resonating.” That’s people ordering online or instore. Being serviced by delivery, curbside, pick-up or in-store … whatever the customer wants.
• They have a service called “Express Delivery”, which is offered from nearly 1000 stores, that enables orders to be delivered to homes in under two hours. They expect 2000 stores by the end of June.
• Historically, prior to acquiring Jet.com, much of Walmart’s eCommerce sales must have been groceries as they say they’ve “picked up traction with pickup and delivery but our Walmart.com non-food eCommerce growth accelerated with Jet.com.  Essentially Jet.com taught them other aspects of online selling.  This helped identify ways to change the product mix and, since groceries typically have a low gross margin, this improved the profitability of Walmart’s overall eCommerce business.
• Sam’s Club saw eCommerce grow 40% in Q1

Walmart is retiring the Jet.com name, and phasing out the brand. It doesn’t mean that the Jet.com acquisition was a failure, it’s just the natural evolution of an acquisition. Eventually, especially when in a similar business, the brand outlives its usefulness.  Walmart is a stronger brand name and is where investment should be made. Keeping Jet.com relevant as a brand would have required significant brand investment … when the customer already knows Walmart and Walmart’s infrastructure is providing the fulfillment.

Walmart commented that “the Jet acquisition was critical to jumpstarting the progress we’ve made the last few years.”

Lessons for distributors

Some observations for distributors:

Size doesn’t matter in being successful in eCommerce. Walmart recognized that it’s prior eCommerce team, and perhaps its vision, could only take the company so far. It needed new blood.

• An entrepreneurial spirit is needed to run eCommerce.
• Walmart used its strength … money … to jumpstart achievement of its goal and made the Jet.com acquisition to get the right people. (Crescent Electric did similar years ago with an eCommerce acquisition.)  The key is using your resource to get the “right people / smart people.”  Maybe it is with money. Maybe it’s networking. Maybe it’s the right supplier choices so you can create an outsourced eCommerce team led by a vision.
• Walmart is using separate metrics to measure eCommerce as a business. Some eCommerce specific. Some contributions to the overall business.  eCommerce is part of an omni-channel vision. Its ROI is not solely eCommerce sales.
• Speed is important. Walmart recognized it couldn’t achieve its goal quickly … serve customers and challenge Amazon (Walmart is now #2 in US eCommerce sales) without a massive investment … and a “from the ground” infrastructure build with existing or newly hired people would take too long. Speed to market.
• eCommerce requires trial and error. The Jet.com acquisition was Walmart’s acknowledgement that it needed something “more” to take the business to the next level. They then built and also experimented (via more acquisitions) and continue to experiment (marketplaces) which is creating new opportunities.  You need business people running eCommerce who are creatively thinking of how to serve the customer and grow the business. Let IT people focus on what they do. Let business development people, or the right outsourced resources that have vision, drive the omni-channel initiative.
• eCommerce can be used for customer acquisition as well as customer penetration
• An omni-channel vision is about customer service … how they want it.

And yes, distributors, if they have certain skills – creativity and market – can and should consider launching their own marketplace … some distributor-oriented eCommerce systems have the ability.

Many electrical distributors are challenged with eCommerce. Part of it is their talent driving the initiative. Part is expectations and vision. Part is the technology and platforms. Yes some have product content issues and yes some are challenged with marketing their sites. Further, and perhaps one of the biggest issues, is customer behavior (as well as management being a slave to the sales organization.) For Walmart the pandemic created an impetus for customers, existing and new, to use the site.  Sites need ease of use … they need to be intuitive.

The technology can be addressed (and consider what Walmart achieved in four years … why does it take distributors 1-2 years to launch a website? Part of it is resource commitment. Part is technology platforms. They key to eCommerce success is iterative development.)

The road that Walmart traveled with Jet.com can be replicated by distributors. The Jet.com deal was about culture, speed, expertise and resources (really smart people and funding.)

Distributors need to integrate eCommerce into their customer omni-channel play. Manufacturers, heading into 2021, are going to stratify distribution based upon a number of variables. eCommerce is one of them. There will be different supplier resources offered to different distributors based upon the services offered in the marketplace. eCommerce is one of them.

Further, distributors need to segment their customers based upon expectations … and customers cannot be defined as the person at the customer that they salesperson has a relationship with. It needs to be broader … and don’t forget the accounts that are never called on.  Rethinking customer experience to broaden your reach to better serve your market will help retain share, eventually take share and accelerate recovery.

If you expect to be in business in 5 years, you need to move along the eCommerce continuum. Perhaps not integrated into your ERP system (especially if you are small or have an “obscure” ERP system) but at least offering an online catalog, content and RFQ capability.

Are you ready to Jet along your path?

(Need some help, give us a call. We can help re vision and resource direction as well as adoption and utilization. If you don’t have the internal resources or need a third party perspective, we can help … as well as help manufacturers consider eCommerce as part of their distribution strategy.)