Wal-Mart (NYSE:WMT) is at a crossroads. Many are predicting the company's future decline, while some, like Warren Buffett, have high hopes for future potential growth. E-commerce represents perhaps the most important sector for Wal-Mart's future.
Landscape of the market
Wal-Mart's recent e-commerce success is encouraging for the company's long-term outlook, especially after acquiring 12 e-commerce businesses in the past three years. Those investments have paid off. In the first quarter of 2014, Wal-Mart's global e-commerce sales grew 27%, which followed a 30% jump in 2013. Furthermore, e-commerce sales positively affected domestic comparable sales by thirty basis points.
Wal-Mart, Target, and Costco all have e-commerce sales which make up fewer than 3% of annual sales. Clearly there is plenty of room for growth. However, Target and Wal-Mart are both attempting to boost future sales growth by competing with Amazon and offering different online purchase options. On the other hand, Costco better be correct about the future viability of its current business strategy. Or else they could see sales dwindle quickly.
A new leader in a successful sector
New Walmart.com CEO Fernando Madeira oversaw impressive e-commerce growth in Wal-Mart's four Latin American bases. E-commerce sales in Chile, Argentina, and Mexico saw triple-digit growth, while e-commerce traffic in Brazil quadrupled and subsequent sales doubled the growth of the market. This notable growth is supposedly attributed to Madeira's guidance in offering a broader assortment of products online while stimulating better fulfillment.
Madeira follows Wal-Mart's recent trend of hiring younger executives to lead the retail giant into the future, and he seems well-qualified for the job. His background in IT and web development will aid Wal-Mart in the rollout of its global technology platform Pangaea later this year.
But he should not be judged by past successes in Latin America. The high growth exhibited in Wal-Mart e-commerce in Latin America may be due to overall growth in e-commerce and not directly attributed to Madeira's work.
Madeira's new position in the United States will require him to deal with a different consumer landscape than he has previously worked with.
Different market, different consumers
For numerous reasons, such as consumer spending and Internet use, Latin Americans are different consumers than those in the United States. Madeira must adjust to the nuances of the North American consumers. Additionally, the technological landscape which influences e-commerce is much different in the United States than Latin America.
The United States boasts significantly more online consumers and higher e-commerce sales per person than in all of Latin America. Furthermore, Internet penetration is at least 10% higher in the United States than Latin American country .
Despite the disparity in online use, Latin America's Internet population is the fastest growing in the world. Latin America currently boasts a 12% annual increase in consumers online, while the US only comes in at 1% growth .
The users driving e-commerce growth are different as well. In Latin America, the most active age demographic on the Internet is 15-24 years old, compared to the most active age demographic of 30-49 years old in the United States .
Madeira faces the challenge of learning to adapt e-commerce strategies to cater to an older and more stable user base in the United States.
Wal-Mart's e-commerce future
Specifically, Madeira will be tasked with pushing Wal-Mart's omni-channel commerce in an effort to integrate physical and digital retail. This strategy enables consumers to order online and pickup in-store, order online and have their product delivered home, or choose between combinations of other options .
Wal-Mart knows it must refrain from becoming a heavy-use Internet retailer, as they are still dwarfed by Amazon. However, Wal-Mart executives think their expansive existing network of brick-and-mortar stores is an advantage -- an advantage which Madeira will have to use in order to stimulate e-commerce.
This strategy compares well against competitors Target and Costco. Target is now expanding its subscription-based e-commerce system, which, like Wal-Mart's e-commerce strategy, directly competes with Amazon .
Costco has no current plans for widespread online improvement or at-home delivery. Basically, the company believes its current business strategy is set for future. However, with Costco's membership model, there is less of a need for growing e-commerce use. Costco members may mainly use Internet services to order non-stocked items to be shipped to stores. That being said, their Internet use and options of services is considerably less than its competitors.
Madeira must adjust to the different circumstances of the United States and its consumers. The strategies used in Latin America should not directly translate to the United States. If Madeira is to lead Wal-Mart into the future and find success in doing so, he must fit Wal-Mart's e-commerce strategies with the preferences of North American consumers.
Whether Madeira can stimulate e-commerce growth will likely determine whether Wal-Mart is headed up or down in the near future. In many ways, the company's future is in his hands.
Jared Billings has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.