Over the past year, Wal-Mart (WMT 0.11%) has been stocking up on online retail outlets. It closed its acquisition of Jet.com about a year ago, and it's since bought four other small online retailers. Wal-Mart's efforts have resulted in huge online sales growth, but its acquisition strategy may be somewhat flawed.
Wal-Mart has put the former CEO of Jet.com, Marc Lore, in charge of its online operations in the United States. He recently spoke at a conference, and when asked what Wal-Mart does better than Amazon (AMZN 0.25%), he said Wal-Mart's unique assets separate it from the competition.
Lore pointed specifically to the "4,600" stores Wal-Mart operates in the United States as a unique advantage over Amazon. Lore may have been using an old store count, because Wal-Mart says it has 4,741 stores in the U.S. That number is somehow getting larger every year.
Roughly 90% of the U.S. population is within 10 miles of a Walmart store. That means Wal-Mart has a big advantage in in-store pickup and online grocery ordering, and has the infrastructure to succeed in shipping items to customers' homes. Indeed, Wal-Mart was able to launch free two-day shipping on its online orders over $35 earlier this year thanks in part to its network of stores. "We can do 2-hour delivery cheaper than anybody else because of the assets we have," Lore said.
After purchasing Whole Foods Market, Amazon's physical storefronts still only amount to about 10% of Wal-Mart's. Even with its network of fulfillment centers, just 44% of the population lived within 20 miles of Amazon's network as of a year ago. Those fulfillment centers naturally have a lot of overlap with Whole Foods locations as they both target high-population areas.
Wal-Mart is the nation's largest private employer with 1.5 million employees in the U.S. Lore cites this as an asset, although the larger overhead has been more of a drag for Wal-Mart. Amazon generates twice as much revenue per employee compared to Wal-Mart.
Lore has been creative in finding ways to make employees more efficient as Wal-Mart boosts online sales. Not only does the large number of employees allow Wal-Mart to quickly ramp up services like fulfilling online grocery orders in its stores, Lore tested using employees to deliver online orders the last mile to customers' doorsteps.
Physical retail necessitates more employees compared to online-only operations like Amazon. Workers need to stock shelves, assist customers in stores, and work the checkout lines. Investors should expect Amazon's revenue-per-employee number to fall after incorporating Whole Foods' numbers into the mix.
But those extra employees offer an opportunity to expand a retailer's capabilities. Wal-Mart's biggest success, so far, has been online grocery ordering and pickup. Lore will continue to search for opportunities like that.
The biggest thing Wal-Mart still needs to fix
Lore wasn't afraid to admit where Amazon has Wal-Mart beat -- that's the overall shopping experience on Amazon compared to Walmart. He said it's easier to find the product you want on Amazon, the competitor often has a greater assortment of goods, and the delivery experience is often superior.
It's simple to hire a bunch of engineers to hack away at Walmart.com's search and recommendation algorithms to find the products people really want. It's a lot tougher for Wal-Mart to convince certain brands to sell their goods at its stores.
Wal-Mart's reputation for low quality keeps it from attracting more high-end brands. That's part of the idea of buying up smaller online outlets like Bonobos and ShoeBuy. It's also made an effort to attract more third-party merchants to its online marketplace.
A quality shopping experience is the biggest hurdle for Wal-Mart to really take on Amazon. And as Amazon moves into brick-and-mortar retail, Wal-Mart may start to feel a bit more pressure to get it right.