The Surprising Way Wal-Mart Stores Inc. Is Trying to Win Online Shoppers

The mass market discounter has a secret weapon that it plans on using for online shopping

Rich Duprey
Rich Duprey
Oct 20, 2014 at 6:41PM
Consumer Goods

The blending of physical stores with online has long been a hallmark of how the retail giant has succeeded. Photo: Flickr via Mike Mozart

For what many view as little more than a simple supermarket, Wal-Mart (NYSE:WMT) is a surprisingly tech-savvy innovator that is not always first to market, but unquestionably changes the dynamic once it enters. That it's now turning its attention to how technology can impact online shopping means we may be about to change how we think about buying our groceries. 

Wal-Mart's tech history is legend. The retail giant was an early adopter of RFID tag technology; it popularized the concept of vendor-managed inventory, where manufacturers are responsible for their inventory in Wal-Mart's warehouses; pushed for using universal barcodes as a labeling system; used a global satellite system to forecast supplier demands through real-time sales data at the cash register; and recently began using smart tags to keep shelves stocked.

And though Wal-Mart might not have invented site-to-store free shipping, its adoption of the concept forced rivals like Target (NYSE:TGT) and Macy's (NYSE:M) to eventually offer the service to their customers, too.

Online shopping could prove to be the next frontier.

Can Instagram's founder reverse Wal-Mart's direction? The opportunity to key into a younger demographic seems too big to pass up. Photo courtesy of Flickr via Official Leweb Photos

Instagram and Wal-Mart
The latest bold move the discount retailer made is bringing onto its board of directors Instagram co-founder Kevin Systrom, a seemingly wet-behind-the-ears 30-year-old executive., who may be better able to relate to the tastes of younger audiences in ways none of his gray-hair peers can.

As Wal-Mart's own CEO said of the appointment, "Kevin's passion and deep knowledge of social media align with our focus to engage customers through our digital and physical channels."

Wal-Mart generated $7.7 billion, or less than 2% of its $476 billion in revenue from the online channel in 2013, but is expecting online sales to almost double this year. Even so, that's still a long way from the $61 billion in sales it's nemesis (NASDAQ:AMZN) recorded.

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The Internet, and not brick-and-mortar stores, is where future growth exists. says online sales for the Christmas holiday this year -- the November-to-December selling season -- are anticipated to grow by as much as 11% over 2013 and hit $105 billion. 

The retailer told investors recently it planned to slow the growth of new U.S. site development in favor of additional online shopping opportunities. While its capital spending plan next year will be only somewhat less than what it was this year, it will be skewed toward e-commerce as it expects to open about half as many supercenters in 2015 as it does this year and will open approximately a third fewer Neighborhood Markets.

Instead, Wal-Mart has been using the string of tech labs set up in Silicon Valley under its WalmartLabs label to acquire technology firms like Adchemy, Stylr, Luvocracy, and Yumprint.

Helping the retailer improve its connection to customers through the use of technology could be the key in how Instagram's Systrom, who will serve on the retailer's technology and e-commerce committees, helps Wal-Mart move the needle.

The photo and social networking site could just make Wal-Mart one of the cool kids again. Photo courtesy of Flickr via Brent Ozar

Whole Foods Market (NASDAQ:WFM) has long been recognized as one retailer that's figured out how to integrate Instagram into the fabric of its customer engagement by focusing on the local nature of its stores and telling stories beyond just product placement.

That attention to the experience of shopping resonates well with younger customers and Systrom's appointment ought to assist Wal-Mart in feeding into that demographic. If it hopes to grow, it will need to attract loyal, youthful customers, something it may be lacking at the moment. Where the deep discounter has some 47,000 followers on Instagram, Whole Foods has more than 267,000 and Target actually outstrips them both with over 380,000 followers.

There's a lesson to be learned here, and by tapping directly into the man that founded the company, Wal-Mart can go a long way toward getting an education.

The risk, of course, is that because Systrom's Instagram doesn't have any e-commerce capabilities of its own -- it's only testing out ads on its site now and Facebook itself is just beginning to dabble with a "buy now" button -- his appointment could be seen as style over substance: We've got a "tech guy" on board now, so e-commerce will roll.

But Wal-Mart once again seems to be honing in on the key concept it needs to grasp to succeed, which, in this case, is targeting a younger clientele, and doing so through Internet technology and social engagement. That alone is surprising for what many consider to be a stodgy retailer, and Wal-Mart's focus on internet shopping portends there could be a reversal of fortunes in its future that surprises Wall Street once more.