The E-Commerce Shake Up of 2016
Bounce Back of a Brick-and-Mortar Retailer
William Wong, 3 Mar 2017
The recent flood of earnings reports has further demonstrated the importance of an effective e-commerce strategy in the survival of a brick-and-mortar retailer. In the fourth quarter of 2016, retail sales shifted 14.3% from physical to virtual – taking $123.6 billion away from traditional retailers. The total e-commerce sales in the US for 2016 were $394.9 billion and accounted for 8.1 percent of total sales. The international market displayed an even greater momentum, generating $2.4 trillion in 2017 and predicted to double to $4.1 trillion by 2020.
After the dust settled from 2016’s holiday season, there was a sharp contrast between the retailers. Amazon led the charge - capturing $26 billion in the US and an additional $14 billion internationally. On the flip side, household names like Macy’s, Sears, Target, JCPenney and Kohl’s struggled to stay viable in this new shopping era. Macy’s e-commerce business fell 2.7% and plans to close 68 stores while laying off more than 10,000 jobs in an effort to refocus their approach. This is detrimental as e-commerce should amount to roughly 20% of a department store’s sales and according to Moody’s, this number is expected to climb up to 35-40% over the coming decade.
A Spark of Hope
The most surprising announcement during this earnings season was Walmart’s declaration of a 29% increase in their fourth quarter online sales vs. Amazon’s 22% increase. It should be noted that Amazon’s gain, while smaller in percentage, still yielded a greater amount of sales and further increased their market share. In 2015, Walmart only clocked $13.7 billion in online sales compared to Amazon’s whooping $107 billion. Amazon’s 2016 numbers jumped to $136 billion.
Regardless of the actual gains, a 29% increase is substantial, especially when more than half of US consumers start their online searches on Amazon. BloomReach reported 55% of consumers go to Amazon first in 2016, an increase from 44% in 2015. The popularity of search engines like Google and Yahoo! decreased significantly to 28% from the previous year’s 34%. Specific retailers suffered even more, dropping from 21% to 16%. Amazon has further cemented itself as the king of e-commerce.
So how did Walmart achieve such high marks when the numbers were stacked against them? How are they surviving when others are closing up shop? To get a better grasp of this phenomenon, we need to first understand how the game is played and won within the e-commerce world.
E-Commerce Trends
2017 will be the year where an effective e-commerce strategy will separate the big boys from the pack, leaving the rest crumbling in nightmares of chapter 7 filings. It’s no big secret that e-commerce is rapidly overtaking its traditional counterpart. And while many retailers may not have the winning formula, they are all screaming for your attention. This causes an oversaturation of information, creating an audience base that is harder to win and easier to lose – who’s biggest motivators are price, breath/depth of item selection, and convenience/ease of use. Below are some e-commerce trends to be aware of, its technological implications, and the impact it will have on human labor.
1. Marketing Analytics
The market for technical marketing solutions continues to grow – from 150 in 2011 to over 3,500 in 2016. Retailers are looking for a crystal ball to identify consumer behaviors, utilize real-time predictive analytics to pin down their target audience and develop user-centric personalization. These will come in all flavors ranging from marketing automation to recommendation engines.
Big Data will continue to play a vital role in a retailer’s campaign (i.e. it can help track user web clicks to identify behavioral trends). NoSQL systems remain the solution to capture Big Data while MPP databases help process all the information. Hadoop or similar frameworks will be used to provide analytical insight for analysts and data scientists.
Retailer’s IT infrastructure will need to further expand, deploying highly distributed computing and virtualized environments to keep up with their increasing BW/BI demands. We will see an uptick in hiring for folks that possess these skillsets.
2. Conversion Rate Optimization
A report generated by Monetate analyzed 1.9 billion shopping sessions in 2016 and found over half of shopping cart items were being abandoned. To increase CRO, Retailers will focus on refining their site search features, incorporating self-learning capabilities and natural language processing. Buy Buttons, shipping cost, delivery speed, User Generated Content and better checkout designs are also hot topics.
There are numerous reasons for cart abandonment and it will take an entire team to tame this beast. Companies will adopt a structured approach to optimization, increase their budget in this area and hire more staff to assist with CRO.
3. Mobile-First Culture
Research indicates an upward trend toward mobile devices. Mobile users continue to increase and accounted for 59% of all e-commerce traffic in 2016. Although only 38% of those sessions convert to a purchase (typical user conducts research on mobile devices on the go and ultimately commits to a purchase on a desktop), a more refined approach on mobile development will help close the gap.
4. Multichannel Shopping
Consumers are continuing to engage both digitally and physically instead of just one or the other. This means both the offline and online worlds need to work simultaneously together in real time. For example, a shopper will be very unhappy if the website claims a product is in stock but wasn’t the case when they arrived in store. While in-store, shoppers are increasing relying on mobile devices for research - often times conducting the research while browsing the aisles of the store.
Developing a mobile friendly e-commerce site, coupled with superior searching capabilities along with some sort of price comparison engine will increase stickiness. Beacon technology has been all the rage and this year and it’s going to explode with the arrival of handset-based indoor location from Apple and Google.
5. Shifts in Marketing
The use of digital marketing will be even more critical in 2017. The downward spiral of mobile data costs will pave the way toward video-based ads that can promote a product within a few seconds. Integrated video demos/ reviews will keep shoppers on your site instead of branching out to YouTube. Facebook and Google Adwords are allowing retailers to sell to the consumers on a personal level via virtual channels. Google
Analytics will continue to be an enabler while Snapchat’s analytics platform may become a disrupter. Personalization tactics like VIP programs, special discounts and early access have been touted to win over customers. The use of Marketing Automation and its implementation will be immensely popular.
The Sleeping Giant Awakens
It has been a transformative year for Walmart and the numbers shows. Walmart’s massive brick and mortar footprint combined with their newly established e-commerce strategies generated over $485 billion in sales and brought home $13.6 billion in cold hard profit. So how did they do it?
Many attributed the acquisition of Jet.com (9/2016) and Marc Lore’s visionary leadership to the uptick in e-commerce. And while Marc’s team played a vital role, the ingredients for success already existed. Walmart simply hired a Michelin star chef to cook them a better meal. Here’s what Walmart had going for them before the “Lore Effect”.
Walmart’s annual sales revenue in 2015 fell for the first time in 45 years. They have traditionally focused on a strategy of increasing net sales by means of reducing operating expenses. In a complete 180, they have done the direct opposite, putting back $2.7 billion into their employees. They paid their workers more, provided flexible/predictable schedules, added training academies and focused on career growth. Walmart’s investment
"The Investments"
in their people translated to a better shopping experience for their customers (i.e. better customer service, cleaner stores, and well stocked shelves). Happy workers = bigger sales.
Tech Buys
Tech Buys: They continue to invest heavily in technology acquisitions. These additional logos help increase Conversion Rate Optimization, enhance personalized marketing and expand their omnichannel retailing capabilities. Some examples include:
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To improve their product discovery features, Walmart purchased a Pinterest-like experience (Luvocracy) that allows friends to recommend products to others. Their Spark Studio integrates Walmart.com pins from Pinterest into a product finder and allows you to pin/re-pin, review and buy products.
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Purchased Stylr (location based app) to enhance the in-store mobile experience.
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Adchemy augmented their product search capabilities.
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Yumprint allows users to search and discover new recipes from food blogs. It also has a meal planning and nutrition calculation feature. This expanded Walmart’s online grocery services by allowing the customer to find a recipe and create a shopping list from it.
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Torbit is a cloud based website accelerator
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Inkiru is a predictive intelligence platform that combines Big Data analytics and a customizable decision engine
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Social Calendar is a Facebook app that tracks birthdays, anniversaries and other occasions to help Walmart add personalization, mobile and social media into the buying process.
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Grabble captures a digital copy of a receipt and most likely contributed to their Savings Catcher program.
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We spoke about the importance of Mobile-First design. In 2015 Walmart.com migrated to React and Node.js and in 12/2015 they built Electrode, a react-based application platform to power Walmart.com and made it open source.
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Built Polaris and rolled it out in 2012. It utilizes a semantic search technology to populate relevant search results based on predicting a shopper’s intent.
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Others include OneOps, TastyLabs, Small Society, OneRiot, Kosmix, and Vudu.
Their Walmart mobile app is ranked in the top 3 amongst retail apps and has some awesome features. It utilizes geofence to virtually map all their stores, allows them to utilize Beacon technology and provides directions on where a product is. "When you enter the store with the mobile app, say you're in Store Mode, you can search the store, and it can also give you the local ad for the store you're in so you know what's on sale in that store. We were one of the first retailers to do that." Said Bako, Director of Innovation for @WalmartLabs.
Walmart App
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Walmart Pay lets you use your phone to pay, creating less friction for the customer.
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Savings Catcher gives shoppers the assurance Walmart is serious about low prices. If a local competitor offers a lower advertised price on an eligible item purchased at Walmart, they will give you the difference via a gift card. Just enter the receipt number and Savings Catcher will compare prices. Not all items are eligible.
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Mobile Pharmacy for ordering, transferring and tracking prescriptions and refills.
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Mobile Check-in alerts a store when a customer arrives so they can get their items ready for pickup.
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Registry allows users to create one for weddings and baby. App has scanner and uploads it into their registry list. It doesn’t have to be for a registry, you can scan products and add it to your wish list and share with friends/family.
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IoT Buttons: Walmart’s answer to Amazon’s Dash is their Hiku product. However, I think this product can be easily integrated into the Walmart App and eventually be phased out.
Online Grocery
Walmart Grocery is a mobile app (iOS & android) that allows you to purchase grocery online, check into the app when you leave home, and it will be ready when you arrive. They expanded their online grocery business and offers curbside pickup and home delivery in some places. Walmart has a strong ability to funnel customers into their physical locations - the buy-online/pick-up in store was so successful that it grew 27%
during the 2016 holiday season. The ability to connect online sales to their stores is a competitive advantage Walmart and only a few others enjoy. Home Depot shared a similar success, 40% of Home Depot’s online orders are picked up from stores. Target on the other hand, while their ecommerce sales were up 34%, it was not enough to outpace their loss from in-store sales.
The "Lore Effect"
“I think Amazon letting Marc go was the biggest mistake in history since Caesar let Mark Anthony go to Egypt to be with Cleopatra” said Eric Schiffer, CEO of DigitalMarketing.com. “The CEO of Jet was trained by one of the best (Bezos) in a fierce, savage, bloody environment and it weaponized him for managerial excellence.”
Walmart had the physical footprint, the logistical infrastructure and the technology to win their war with Amazon. What it was missing was breadth and depth of product choice, a bold delivery approach and a visionary to lead the charge on the ecommerce front. A company is only as good as their talent, and Walmart’s recent hire sparked a level of synergy loud enough to wake the sleeping giant.
At its 2016 Investment Community Meeting, Walmart outlined four key areas of focus (Make every day easier for busy families; Operate with discipline, including a continued focus on expense management; Be the most trusted retailer; and Deliver results and positon the company to win). Walmart shifted some seats to ensure their 4 corporate cultures are being met, placing Lore at the helm of ecommerce. Under this new regime, they improved the following:
Free Delivery, now!
One of the biggest killers of conversion rate is charging for delivery. To compete with Amazon, Walmart got rid of their ShippingPass and started offering free two-day shipping for orders over $35 – without any membership fees. This beat’s Amazon’s deal – which charges $99/yr for Prime to receive 2day shipping. Amazon also had
to lower their free shipping minimum from $50 to match Walmart’s $35. This free shipping however, does not guarantee 2 days delivery. With the race for cheaper and faster delivery, retailers need to figure out a way to stay competitive while absorbing shipping costs. Jet.com’s shopping cart algorithm is a prime example of ingenuity at its best.
Competitive Advantage
Walmart has the distribution edge, period. With more than 6,000 stores and further investments in online warehouses around the country, they are the only ones that has the ability to eventually provide same-hour deliveries. They’re already providing 2 hour delivery services for Sam’s Club products in China via their 10% investment into JD.com.
Bigger Selection
Quadrupled the number of items available for purchase online to 35 million. Acquisitions of Hayneedle (came with Jet.com), Moosejaw (1/2017) and ShoeBuy (2/2017) secured their spot in the furniture, outdoor clothing/gear and shoes category, respectively.
We are barely seeing the tip of the iceberg when it comes to Walmart’s gains. The 2 day delivery was only initiated in January, so Q4’s numbers did not reflect what I can only imagine to be a positive impact to sales. The expanded SKUs will help drive more users into Walmart’s camp. Operating expense should continue to drop as they incorporate Jet’s cart algorithm. Their continued commitment to price and customer service increases loyalty. The end result is a bigger, happier customer base who will have seamless access to a broader set of items (in-store or online) – delivered when and where they want it. Being a consumer hasn’t been easier.