Walmart has been going all out in the past year to grow its e-commerce business, and the latest move is a partnership with Google that it announced last week. According to Walmart, beginning in late September, it will offer customers “hundreds of thousands of items for voice shopping via Google Assistant” – the largest number of items from a single retailer available on the Google Express online shopping platform. While the Google partnership will certainly help Walmart drive online sales, it promises limited gains and doesn’t seem to be part of a larger e-commerce strategy, according to experts.
The stakes in the online shopping game are constantly rising, especially when it comes to taking on Amazon – which, with its recent acquisition of Whole Foods Market, is now encroaching on Walmart’s brick-and-mortar territory. “People feel competing against Amazon is a very tough proposition, and I want to see competition there,” said Wharton marketing professor Barbara Kahn.
According to Mark A. Cohen, director of retail studies and adjunct professor at Columbia Business School, the deal “doesn’t necessarily lead anywhere…. The intersection of Walmart’s customer base and Google’s users is so small that this is likely to be insignificant.”
Kahn and Cohen discussed the outlook for Walmart’s e-commerce business on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
A Rash of Deals
The past year has seen several high profile deals to enable brick-and-mortar companies gain a stronger online presence and vice versa. The biggest of them was Amazon’s $13.7 billion purchase of specialty retailer Whole Foods, which officially closed on Monday. Amazon also dramatically slashed prices at Whole Foods stores the same day — putting them more in line with what consumers would find at Walmart, according to a Business Insider report. Amazon’s Whole Foods buy is one he would closely track, said Cohen. “Whole Foods could be an interesting wild ride for Amazon, depending on whether it sees it as a technology play or a brick-and-mortar play.”
Walmart began the recent trend of such deals with its August 2016 purchase of e-commerce retailer Jet.com for $3.3 billion, which it operates as a subsidiary. Along with Jet.com came its cofounder and CEO Marc Lore as president and CEO of Walmart’s U.S. e-commerce operation. He lost little time in Jet buying men’s clothing retailer Bonobo’s, women’s clothing and accessories retailer ModCloth, and footwear, clothing and accessories retailer ShoeBuy. All those deals seem to be working out well: In its latest financial results for the July-ending quarter, Walmart posted a 60% growth in e-commerce sales (although it did not disclose dollar values).
“The firm that owns the shopping list is the firm that has a big advantage.” –Barbara Kahn
Walmart’s Google partnership might be construed as the next step in those efforts to grow online revenues. “Running around, going to work, picking kids up from school, making dinner and, between all of that, there’s shopping to do,” said Lore in a blog post on the deal with Google. Next year, Walmart will integrate its 4,700 U.S. stores and its fulfillment network within the Google partnership, he added.
According to Kahn, the biggest plus for Walmart is the ability to control shopping lists. “The firm that owns the shopping list is the firm that has a big advantage,” she noted. “In the future, as the home becomes more connected and people become more used to talking to Alexa or Siri in building their shopping lists, you really need to be in that game. It’s forward thinking.”
No Big Deal?
Wharton marketing professor David Bell is not overly upbeat about the gains for Walmart from the Google partnership. “Walmart, like many legacy retailers, has struggled to do well online,” he said. “Legacy retail is built on arm’s-length customer relationships, physical store models that combine inventory for sale and the selling experience under one roof, and many other factors that are simply outmoded. We need more time in order to be able to understand this, but I am not especially optimistic about this partnership,” he added, noting that Google has had “limited success in online selling.”
While Cohen felt the deal could broadly help Walmart, he thought the concept of using a market like Google Express to represent individual retailers “is on thin ice.” Moreover, he said, “I don’t think Google Express has acquired a large enough base of customers to move the needle very much with regard to Walmart.” Google Express doesn’t have “the magic that Amazon has created in the form of a marketplace,” he added.
Cohen predicted that Walmart is likely to take the same road as Macy’s did in finding that its online business grew with its legacy customers migrating to the internet, rather than acquiring new customers.
However, one large, overlooked issue, Cohen noted, is the likelihood that “a good deal of Walmart’s customers do not possess, or use or wish to use credit cards.” In fact, his guess is that as much as 50% or maybe more of Walmart’s sales are in cash. “That fact stops Walmart dead in its tracks in many respects from participating in this [online] marketplace,” he said. “It’s the elephant in the room that Walmart doesn’t seem to be addressing up front,” he added, noting that the company may be working on alternatives.
“This looks to me like Walmart with bundles of cash throwing darts at a wall that may not even exist.” –Mark Cohen
Bell also didn’t see the Google deal helping Walmart move away from cash sales. “I am not sure that a cash-paying Walmart-shopping customer will be driven online by access to Google [technology],” he said. “That’s at least two behavioral changes: payment — away from cash to some kind of online payment whether credit or other — and from offline to online as well. Furthermore, the core customer might live in locations that make other aspects of online shopping (for example, delivery) inconvenient. So, no, I don’t think that the Google deal helps here.”
Another dampener for Walmart could be that Google Assistant is not as big as Amazon’s Echo with its Alexa voice service in the voice-activated device space. “Amazon is way ahead, and I think that customers just more naturally associate Amazon with ‘all things shopping’ than they do Walmart or Google, for that matter,” said Bell. “I can’t see a compelling reason yet for a customer who is part of the Alexa/Amazon ecosystem to move away from that.”
Notwithstanding that discouraging outlook, Kahn said, Walmart does need the technology platform to drive its online sales, especially since it hasn’t been able to do that organically and has depended more on acquisitions for it. She suggested that Walmart would be making a mistake if it were to depend solely or largely on its legacy customers and not try to look to the future by attracting new customers to drive its online sales.
“They also have to look toward how [consumer] behavior is radically changing and 24/7 touch points,” Kahn pointed out. “A lot of it will come from the connected home or the connected car in the future, and Walmart has to get its foot in the door on that technology.”
Bell said he does expect the partnership to deliver “significant technology” for Walmart. “The question is whether this tech will be deployed effectively and/or adopted by shoppers. Google has a litany of tech failures in the consumer space and that has to be a cause for concern. Apple and Amazon have always done better with tech and devices, and I am not sure that this is about to change.”
Walmart and Google bring “complementary assets” to the table, Bell noted. “Walmart has distribution and retail know-how, as well as physical stores. Google has technology that will increasingly be part of the shopping experience. So, Walmart can gain by having access to things that it currently does not have … and using those assets to make its own retail assets more productive.”
An Incoherent Strategy?
On the whole, however, Walmart’s acquisitions on the e-commerce front “don’t make any sense,” according to Cohen. “They’re not forming any kind of a reasonable or rational mosaic. There may be 50 or 100 more brands that they cobble together that begin to form some rational expression of assortment building, but today this looks to me like Walmart with bundles of cash throwing darts at a wall that may not even exist.”
“The intersection of Walmart’s customer base and Google’s users is so small that this is likely to be insignificant.” –David Bell
According to Cohen, Walmart must bring greater focus “to dramatically improve its assortments, and be of greater appeal to broader array of customers.” At the same time, it is doing right in allowing its acquisitions like Jet.com and Bonobo’s to stand alone, said Kahn. “They are not trying to Walmartize them, at least not right away, and that is the right way to go.”
Walmart also has to continue improving the presentation and performance of its stores, said Cohen. Some philosophical changes would also help, he added. “They have a tremendous focus on price, not just chic, which is a cultural issue they have to overcome.”
Does the Google-Walmart deal change the stakes for Amazon? “It just ups the ante in terms of competition,” said Bell. “It also validates Amazon’s early moves into tech-enabled shopping and their recent moves into physical retail via Whole Foods and other avenues.”
More broadly, Cohen listed other shifts or deals that could come over time. One, he said, is for Target “to throw in the towel on food,” arguing that it lacked competitive advantages in that area. He also thought that a combination between Amazon and wholesale club Costco made sense. “Costco has the original subscription model that Amazon Prime is modeled on,” he said. He saw a big opportunity there: “Costco has been one of the most productive and one of the most profitable [of retailers]. [Yet] they do almost no business on the internet.” Here, he blamed Walmart for failing to make it big with its Sam’s Club, which he described as “the No. 5 player in a two-horse race.”