Wal-Mart No Web Mart

Sudden site closure magnifies online superiority of retail rivals

Sam Walton, the revered founder of Wal-Mart Stores, once intoned: "The secret of successful retailing is to give customers what they want. And they want everything."

But one place they're not getting anything, at least for the next few weeks, is Wal-Mart.com. As Sears Roebuck, JCPenney and other retail rivals surge forward on the Web with unique strategies, Wal-Mart continues to give signs that the Internet is something it doesn't understand.

In a second attempt in less than a year to re-establish its footing on the Web, Wal-Mart last week shuttered its online store, informing visitors it would be down for "a few weeks" for improvements before the holidays.

It's not unusual for retailers to rework their sites, but it's uncommon for a major merchant to close an e-store entirely for weeks in order to "remodel." Other companies that have redesigned of late--including Eve.com, IBM, Omaha Steaks and Nike--developed and tested their new sites while their old ones were operating and then switched over, usually at night.

Wal-Mart's unexpected move has analysts wondering if the site was a victim of poor planning, technical glitches or both.

"There's no good reason to have to do this. Nobody else has to do this," said Forrester Research analyst Seema Williams. "It's one thing for your site to be totally overrun by customers and you have to shut down. That's a good news/bad news type of thing. But that's not the case with Wal-Mart."

At the company's annual analyst meeting last week, Wal-Mart.com CEO Jeanne Jackson said the site was shut down so the company could relaunch it on an e-commerce platform it acquired in July from HomeWarehouse.com. Jackson said developing on the open-source platform will be less expensive than buying and extending a canned system, but she didn't explain why Wal-Mart didn't keep the old site up while ramping up the new one.

Wal-Mart's decision to build rather than buy is in keeping with its historical preference for proprietary technology, which the retailer sees as a competitive advantage over rivals that use packaged software. "We can build the technology we want for our customers," said Jackson, who joined Wal-Mart in March after heading the Gap's Banana Republic unit.

Jackson's comments came amid an upbeat analyst conference in which Wal-Mart said it plans to open 300 physical stores worldwide next year. The company reported that total sales in September rose 10.5 percent from the year-earlier period to $17.3 billion.

But relative to the other big brick-and-mortar retailers, Wal-Mart is a Net wannabe. When the company relaunched its online store in January and later tapped venture capital firm Accel Partners as a minority partner to help speed development of Wal-Mart.com, pundits said it would soon threaten Amazon.com.Ten months later, Wal-Mart.com is offline, and the company's Web traffic trails the competition's.

According to Net traffic measurement service Media Metrix, Wal-Mart ranks last in online visitors among JCPenney, Sears, Kmart's BlueLight spinoff and Target. Its 1.5 million unique visitors in August represented about half the traffic generated by JCPenney.com.

Brick-and-mortar rivals Sears and JCPenney in August both managed to break into the top 10 retail sites on the Web in sales, with 359,000 and 351,000 buyers, according to PC Data Online. Wal-Mart isn't even in the top 20, languishing behind much smaller click-and-mortars such as Old Navy.

But Wal-Mart insists its online strategy is on track and, like the other big merchants, its approach to virtual retailing mirrors its world-beating brick-and-mortar strategy. For Wal-Mart, that will mean selling at "everyday low prices" and focusing closely on customer service. Jackson said the online redesign will focus on site reliability, speed, gift features and shipping reliability.

But especially compared with Sears and JCPenney, Wal-Mart is behind. Sears's Web strategy largely focuses on increasing sales in its brick-and-mortar stores, and to that end it has seen success. The company says 10 percent of its in-store major-appliance purchases--a category Sears leads with a 38 percent share--were influenced by customer research online. In hand tools--another category Sears dominates--the merchant found that shoppers who browse the company's site buy 27 percent more products in physical stores than shoppers who don't.

"Integrating clicks and bricks is a key tenet of our strategy," said Dennis Honan, vice president and general manager of Sears Online. "If the online experience is disconnected--in terms of product offerings, pricing, delivery or service--from what happens in our stores, then our customers get confused."

Like most of its rivals, Sears doesn't break out its online revenue, except to say it's a very small portion of its $42 billion in annual sales. But it's growing: In June 2000 alone, Sears's online sales volume equaled its total for 1999, and site traffic exceeded its peak for all of last holiday season, a spokeswoman said. The company plans to quadruple the number of Sun servers running its site this Christmas compared with last year.

Sears is also making strides in online buying. In February, along with Oracle and French retailer Carrefour, Sears launched GlobalNetXchange, an online marketplace directly linking retailers to their suppliers.

JCPenney has molded its e-retailing model to its customers, 70 percent of whom are women looking mainly for bedding, curtains, home furnishings and similar products. Unlike Wal-Mart and other rivals, JCPenney put its entire product database--a whopping 200,000 SKUs--onto the Net.

Unlike its competitors, JCPenney crows about its online revenue. It expects to generate $300 million in Web sales this year, up from $102 million last year. JCPenney would be profitable online if it weren't reinvesting in that business, said Paul Pappajohn, JCPenney's president of e-commerce.

In April, JCPenney launched Red Alert, a site that offers any of three pricing models for surplus goods. It can mark products at clearance prices, operate conventional English auctions similar to eBay, or price items using "automarkdown" technology that tracks inventory at timed intervals and sets prices accordingly. JCPenney turned to vendor FairMarket for the hosted auction and markdown applications.

JCPenney has earned the admiration of more than one competitor. "It has, if you're speaking honestly, the most successful Web effort of any of the others at this point in time," said Chris Lien, CFO of Kmart spinoff BlueLight.com. "We obviously hope to eclipse it, but it's an example of a company that has done well on the Web."

Offline, Kmart uses a "promotional" strategy, slashing prices on a few items in the hope that customers will pick up other goods as they shop. To translate that strategy to the Internet, BlueLight made the radical move of rolling out its own free ISP service that informs subscribers of special promotions at the site by posting a small blue light on their browsers.

The blue-light promotions, expected to go live in November, will make targeted pitches at ISP users who voluntarily provide BlueLight with personal information over the Web. The company also will track shoppers' buying behavior to target promotions, thanks to merchandising software from E.piphany.

BlueLight says it has attracted 4.3 million ISP subscribers and is adding 150,000 weekly.

Kmart also broke from the prevailing retail strategy by rebranding itself on the Net, going with the BlueLight name. This decision will let the site sell a broader assortment of goods than are sold in Kmart's offline discount stores, Lien said. "A fair number of manufacturers don't want their brands associated with the discount channel," he said. "So we've tried to position our company as a bridge."

The ISP model is untried, Lien admitted, but as traditional brick-and-mortar retailers that lack catalog operations--and their attendant product processing and delivery capabilities--both BlueLight and Wal-Mart will have to be innovative if they're to remain competitive on the Net.

"Our ramp period is going to take longer," Lien said. "We also can't just take catalog buyers and push them to the Web."

Wal-Mart recognizes the problem as well. The company broke ground on its first wholly owned fulfillment center in July, complementing its fulfillment relationships with direct-marketing firm Fingerhut and others. Wal-Mart's Jackson said that rather than grow into its fulfillment infrastructure, the company will build warehouses and picking and packing capabilities as it needs them.

Target, another major retailer without a catalog business, got around the problem in one fell swoop. It purchased catalog firm Rivertown Trading two years ago for the explicit purpose of picking up its catalog fulfillment capability and applying it to the Web.

Target is more "upscale" than rivals Wal-Mart and Kmart, plying the "soccer mom" demographic with proprietary designer clothing and other high-ticket goods. The company sells a select number of SKUs on its site, specializing in gift items, home decor and toys. Target.com also operates baby and bridal registries.

It makes no sense for the company to tarnish its higher-end reputation by selling commodity items online, said Jerry Storch, Target's president of financial services and new businesses. "There is no strategy in trying to be different online than you are offline," Storch said. "The brand is the same thing in both places. It must stand for something."

Target is building a customer database with Compaq that the retailer hopes to take live next year.

The Zero Latency database, whose capacity Storch pegged at several terabytes, will store credit card information, purchase histories and other customer data, then dynamically render the Web site for each individual based on his or her profile.

Supplier Access
Target built a proprietary Web interface called Partners Online that gives some of the company's biggest suppliers access to information on which of their goods are selling. "The Internet is a completely new circulatory system for our business," Storch said. "It's our new arteries and veins."

Storch said that even though Wal-Mart's Net business may lag behind those of its big rivals, it would be foolhardy to count out the retailing leviathan. "People like to make fun of what Wal-Mart hasn't done on the Internet, but believe me, they'll do it," he said. "I've competed against them for years, and they're very persistent and very well-financed."

Still, past redesigns by Wal-Mart have failed to improve the site's customer service, said Susan Ashley of Resource Marketing, which studies e-retailers' service.

Wal-Mart, for instance, didn't e-mail customers to inform them of the shutdown, said Ashley.

Said Ashley: "It doesn't seem they were prepared for really providing a customer-friendly response to consumers who regularly shop at Wal-Mart."