Final Recommended Strategy:
Hybrid e-Tailing and Brick-and-Mortar Model
Problem: Losing Ground as the Cost-Leadership Poster Child
Wal-Mart Stores, Inc.’s legendary competitive advantage in distribution and low cost operations has eroded beyond the point of recovery. Once considered the undisputed cost leader in retail, a recent study showed that after discounting tax and shipping, a basket of goods at Walmart cost 19% more than at Amazon.com (Jannarone, 2011). Forbes contributor Steve Denning points out that if a consumer wants something quick, he shops at a convenience store; if he wants something cheap he’ll buy at Amazon.com; and Walmart is no longer needed (Denning, 2011).
Walmart has frantically battled against Amazon’s superior cost leadership, but it has become clear that they cannot draw blood from a stone. Their former competitive advantage in low cost operations—sustained for decades—is no longer as difficult to imitate as it once was. Although Walmart’s financial reports still show fairly admirable ratios, their customer traffic in U.S. stores declined during the five consecutive quarters ending in February 2011 (Denning, 2011). Their five-year stock performance (WMT in blue) vis-à-vis Amazon (AMZN in red) also paints a bleak picture, as seen in the chart below. Another growing cause for concern over Walmart’s battle for cost leadership is its impact on their negative public image as an employee-abusing, union-busting bully.
Proposed Solution: Interactive In-Store Shopping Experience
Although their cost leadership has been conquered by focused e-tailers, Walmart possesses a resource that is at once valuable, rare, not easily imitable and supported by an organizational structure that is prepared to leverage it. Walmart boasts that two-thirds of the U.S. population resides within five miles of a Walmart retail store (Wal-Mart Stores Inc., 2013), an impressively short reach into a more than $4 trillion dollar industry (U.S. Census Bureau, 2013). To beat its e-tailer competitors, Walmart must begin to delight its customers by providing an unparalleled interactive in-store shopping experience. This can be achieved if Walmart becomes a leader in the deployment of indoor positioning services coupled with offshored sales support, analytics-driven shopping assistance, custom-tailored bonus offers, gamification and online self-checkout.
However, economics journalists like Matthew Yglesias have argued that as a retail incumbent, Walmart cannot successfully enter e-tailing without cannibalizing their in-store sales, thereby harming their stock performance (Yglesias, 2013). As evidenced by Amazon’s recent decisions to expand its physical presence with warehouses and product pickup locations, the CEOs of both corporations believe the strongest position in retail is to be a hybrid between e-tailing and brick-and-mortar facilities (Miller & Clifford, 2013). Rather than igniting hyperinflation by imitating Amazon, Walmart must cultivate a...