What Walmart Can Teach Distributors About E-Commerce - Modern Distribution Management

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What Walmart Can Teach Distributors About E-Commerce

Size doesnt matter when it comes to being successful in e-commerce. Walmart recognized that its prior e-commerce team, and perhaps its vision, could only take the company so far. It needed new blood, says Channel Marketing Groups David Gordon.

A few years ago, Walmart was challenged in e-commerce. 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 e-commerce market was growing at a much more rapid rate. Walmart made the determination that it wanted to compete in the online space.

Its sheer size made it successful in e-commerce from a dollars viewpoint, but 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 those investments jumpstart initiatives.

Enter Walmart’s acquisition of Jet.com

Jet.com was established in New Jersey by smart e-commerce people who had experience in retail. They designed a different model, similar to a warehouse retailer (think Sam’s Club), and hired really smart people. They raised private equity money and experienced a lot of media fanfare. They launched and shortly thereafter along came Walmart to acquire them for $3.3 billion.

Remember, Walmart has a lot of money.

The acquisition showed that Walmart was serious about e-commerce. 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 e-commerce acquisitions in the form of other online retailers. Some deals work, some don’t, but the Jet.com personnel Walmart brought on have powered an e-commerce strategy.

Also see: “Opportunities and Challenges in a Shifting Distribution Market.”

Walmart E-Commerce Results

Walmart’s Q1 results, released in May, its e-commerce performance and a change made with regard to Jet.com.

  • Walmart U.S. comp sales, excluding fuel, were up 10% for the quarter
  • e-commerce sales for Q1 were up 74% and the product mix improved, improving overall profitability for this sector
  • Part of Walmart’s e-commerce 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 that is offered from nearly 1,000 stores. It enables orders to be delivered to homes in under two hours. They expect to offer it out of 2,000 stores by the end of June.
  • Prior to acquiring Jet.com, much of Walmart’s e-commerce sales must have been groceries, as they say they’ve “picked up traction with pickup and delivery but our Walmart.com non-food e-commerce 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 e-commerce business.
  • Sam’s Club saw e-commerce 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.”

Also see: “How to Get Prospects to Want to Do Business with You.”

Lessons for Distributors

Some observations for distributors:

  • Size doesn’t matter when it comes to being successful in e-commerce. Walmart recognized that its prior e-commerce team, and perhaps its vision, could only take the company so far. It needed new blood.
  • An entrepreneurial spirit is needed to run e-commerce.
  • Walmart used its strength (money) to jumpstart achievement of its goal and made the Jet.com acquisition to get the right people. The key is using your resource to get the right people/smart people. Maybe it’s with money. Maybe it’s networking. Maybe it’s the right supplier choices so you can create an outsourced e-commerce team led by a vision.
  • Walmart is using separate metrics to measure e-commerce as a business. Some e-commerce specific. Some contributions to the overall business. E-commerce is part of an omni-channel vision. Its ROI is not solely e-commerce sales.
  • Speed is important. Walmart recognized it couldn’t achieve its goal quickly, serve customers and challenge Amazon (Walmart is now No. 2 in U.S. e-commerce sales) without a massive investment. A ground-up infrastructure build with existing or newly hired people would take too long. Speed to market.
  • E-commerce 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 it, experimented (via more acquisitions) and continue to experiment (marketplaces) to continually create new opportunities. You need business people running e-commerce 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.
  • E-commerce 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 with certain skills — creativity and market — can and should consider launching their own marketplace. Some distributor-oriented e-commerce systems have the ability.

Address Challenges

Many electrical distributors are challenged with e-commerce. Part of it is their talent who are 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. Consider what Walmart achieved in four years. Why does it take distributors one to two years to launch a website? Part of it is resource commitment. Part is technology platforms. They key to e-commerce 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.

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

Further, distributors need to segment their customers based upon expectations. Customers cannot be defined as the person at the customer that the 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 five years, you need to move along the e-commerce 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?

\"DavidDavid Gordon is the president of Channel Marketing Group and has worked with companies in multiple industries on marketing strategy and execution, organizational and culture development, internal communications, employee motivation and change management. A version of this blog ran on electricaltrends.com. Email him at dgordon@channelmkt.com.

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