Is This Old-School Retailer Really a Tech Company?

Discount retailer Wal-Mart (NYSE: WMT  ) is not typically thought of as being a leading-edge tech company. Operating in 27 countries, generating $444 billion in 2012 revenues, and with 2.2 million employees, it's more likely considered a stodgy, steady-growth business at best and, well, its many critics have derisive names for it at worst. Yet both views are mistaken, because to be able to move that much merchandise globally, Wal-Mart has to be at the top of its game technologically.

Where Wal-Mart goes, others follow
Because of its reach, when the retailer creates a vendor program, it can transform an industry. It was one of the first large companies to invest heavily in RFID tag technology a decade ago, and though some suggest it almost killed the industry because of its dominance of it, Wal-Mart also brought it into the mainstream. It was also one the first retailers to adopt and push for the universal barcode as a labeling system and it was an early adopter of electronic data interchange, or EDI, the transfer of documents electronically between the company and its suppliers instead of using paper or fax (which remains one of the requirements for becoming a Wal-Mart vendor).

Efficient supply chain and inventory management requires superior tech knowledge, and 5,500 members of its far-flung workforce are dedicated to IT .

Corralling big data
Yet it's not alone as a vanguard of tech usage. Target (NYSE: TGT  ) can easily match the deep discounter in tech innovations, like using its branded Visa credit card to mine data from its customers' spending habits. Best Buy (NYSE: BBY  ) is attempting to thwart the impact of "showrooming" by displaying QR codes -- the quick-response pixilated square that's becoming more ubiquitous on packaging and elsewhere -- to give shoppers more product information and prevent them from needing to go online to buy the item elsewhere. Target and Macy's (NYSE: M  ) are using them as well, with the latter even educating the public through TV spots about the value QR codes represent.

Wal-Mart's leadership in the space, however, comes from its willingness to invest in the latest technology to connect its global retail operations to one of the largest nongovernment data warehouses in the world. According to SAS, Wal-Mart handles more than a million customer transactions each hour and imports those into databases containing an estimated 2.5 petabytes of data. It is also home to an embedded tech incubator, WalmartLabs.

So from influencing the way customers shop to predicting what they'll need and want next, Wal-Mart is every bit as much a tech company as Apple or Cisco. It's just wrapped in a layer of dull retailing.

Fencing in the competition
The next advance for Wal-Mart may be in mobile communications. It launched a location-aware app that goes into "in-store mode" as soon as a customer is within range of a store, called geo-fencing, and essentially pushes promotional data to a smartphone. It also provides customers with the current sales flyer, allowing them to see what's new on sale, scan bar codes, and tally the cost of what's being bought before even getting to the register. Additionally, shoppers can switch to online mode so that if the product is out of stock in store, they can find it online and have it shipped. 

Obviously, the reason behind all of Wal-Mart's investments in technology has been to drive sales, and though traditionally that's been for its brick-and-mortar stores, as the mobile app shows, it's now for the digital arena, too, and with good reason.

Amazon.com (NASDAQ: AMZN  ) has devastated the business models developed by Best Buy and Barnes & Noble, and Wal-Mart wants to make sure it's not the next victim. Where Wal-Mart dwarfs Amazon's $57 billion in annual sales, its e-commerce sales are a comparatively meager $4.9 billion, as estimated by Internet Retailer, or less than 10% of its rival's total. And with Amazon pushing further into Wal-Mart's domain with retail sites like Diapers.com and Wag.com, a pet supplies site, it's all padding the top line.

The importance of e-commerce to Wal-Mart is evident in that some 12% of online sales made through its smartphone app as of last November happened while customers were in the store, or at least using its app in the in-store mode. Embracing the showrooming concept may just allow it to compete more effectively against its digital rival.

Wal-Mart everywhere and anywhere
Mobile commerce is firmly established with consumers, and though still relatively small, it will continue to grow until it's a significant part of the overall shopping experience. Juniper Research says spending by all retailers on mobile marketing will reach $55 billion by 2015, nearly double the $28 billion that will be spent this year. But whether it's in the backroom, around the globe, in your neighborhood, or on your smartphone, you can be sure Wal-Mart will be leading the way forward.

Considering its stock, at 14 times earnings estimates, is as discounted as the products lining its shelves, an investor may want to include the retailer in the tech portion of a well-balanced portfolio.

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