For nearly 20 years, the question of whether the grocery business will migrate to the Internet in a meaningful way has gone unresolved. In the mind of Neil Ashe, president and chief executive officer of global e-commerce for Wal-Mart Stores, Inc., the question has a clear and definitive answer:
“Do we believe that there will be e-commerce for groceries? Yes. Are we building the ability to serve those customers effectively? Yes.”
While a number of Wal-Mart executives have referenced the company’s growing investment in recent years in its on-line business, Mr. Ashe in a recent presentation gave investors a deep look into the latest, three-year-old efforts in this area. While he did not assign a dollar amount to what the retail giant has invested for the initiative, he was not modest in his description of the changes implemented. He spoke June 18 at the Goldman Sachs dotCommerce Day in New York.
“Those of you who know, when Internet companies go through a re-platforming it can be a daunting experience,” he said. “So we literally changed the plane in the air. We didn’t change the engines on the plane. We didn’t change the seats on the plane. We didn’t change the fuselage. We changed the whole plane. We built a cloud. We built a backend logic system. We built sites, apps and mobile web experiences. And we built all the tools necessary to run an e-commerce business. So we built a commerce operating system. And we have done that inside of three years.”
The principal beneficiaries of the changes have been consumers, who now enjoy a better experience at Walmart.com, Mr. Ashe said. For example, the selection on the site has grown from 700,000 items to more than 7 million.
The work done to “change the plane in mid-air” and create a best-in-class experience was not conducted in Bentonville, Ark., where Wal-Mart is headquartered.
“I am obviously not a retailer by background; I grew up in the Internet technology world and all of my team is the same way,” Mr. Ashe said. “We have brought some people over from the retail organization, but we are largely consumer Internet folks. We built this company as an Internet technology company that was relevant inside of Wal-Mart.”
Offices for the company’s e-commerce business are located in the Silicon Valley towns of San Bruno and Sunnyvale, Calif., and have several hundred employees.
Asked about the company’s ability to draw professionals with the needed skills to successfully achieve Wal-Mart’s e-commerce objectives, Mr. Ashe conceded he had his own misgivings when he joined the company.
He said, “I think that was candidly the biggest question we had when we started on this journey — ‘Can we get the talent that we need? Can we compete effectively in Silicon Valley for that talent?’ And so, we set about a very purposeful strategy to do that.”
Over the three years the company has been building its new on-line model, the job market in Silicon Valley has had ups and downs, Mr. Ashe said.
“But we are always over an 80% close rate on offers that we make,” he said. “The people that we are competing for to get from and/or competing for talent are the people that you would expect — Google, Facebook, LinkedIn, Yahoo!, etc. So we are really, really pleased about that. And that has allowed us to do this re-platforming exercise, and it has allowed us to scale.”
The pitch Mr. Ashe described for would-be Wal-Mart e-commerce employees represents a blend of Bentonville corporate mission and Silicon Valley aspiration.
He explained, “Everyone who has come to join our team has heard some flavor of the following — ‘Come for the purpose — help people save money so they can live better. Come because you want to solve really hard problems, because we’ve got them — strategic, technical, operating and financial. Come because you are intrigued by scale — we can solve those in ways other can’t.’”
Underpinning the decision to completely revamp Wal-Mart’s approach to on-line shopping is a perception at the company of fundamental changes more generally in where retail is headed.
“Commerce is going to clarify for the customer, and we think the customer is going to have less relationships, not more relationships,” Mr. Ashe said. “They are going to look for people that can provide them the services, the goods and the manner in which they would like to receive them. And so, if I paint a picture of commerce for you in the future where you can go to someone you trust, you can find everything you need at a low price and you can get that in any way that you want it. And not every person wants it the same way, and not every person wants it the same way every time.”
The customer must be able to satisfy their needs on any of several devices, whether it is a mobile phone, a tablet or a desktop computer, Mr. Ashe said.
Similarly, the consumer will want the choice of having the product delivered to their home, to pick up the product at the store or walk in the store to acquire it. With that vision in mind, Wal-Mart is pursuing “best-in-class e-commerce” and is “marrying it with the assets of retail to win this vision we are describing.”
The process of fully developing and unfurling the Wal-Mart e-commerce program has not yet been completed, even as currently envisaged, Mr. Ashe said. For instance, the company plans to use its stores as an “outer ring” of a supply network and an important part of keeping costs under control.
Still, even amidst ongoing development work, growth has been impressive,
“We have been very successful in the last three years scaling the traffic piece of the e-commerce business,” Mr. Ashe said. “So at Wal-Mart I think in comScore we passed Apple last month so we are now the third largest traffic site. And that is candidly without fully activating the stores yet. So those are largely new customers on top of stores.
“You now have a personalized shopping experience that you didn’t have on Walmart.com before. We have built a very effective and highly scalable personalization capability. We built a search engine so you can find what it is that you are looking for.”
The e-commerce system at Wal-Mart is “tied together by one of the most efficient transportation networks in the world,” he said, attributing the efficiency in part to the volume of merchandise that moves through the system. Ultimately, it is economies of scale that will be the principal driver of whether this initiative is successful.
“You need to have throughput to drive down cost and to make low prices,” Mr. Ashe said. “So, we don’t use every one of our stores as a fulfillment node, but we use many of them.”
The decision to fully invest on-line was a long time coming at Wal-Mart, Mr. Ashe said.
“I don’t think it is a secret that we were, as an organization, probably slow to this because we couldn’t get our heads around cannibalization,” he said. “This is ironic because, as you know, every physical retailer, when they add new square footage, contemplates the concept of cannibalization. So I am not sure why it is any different in this environment. So, I think ultimately we will be measured on did we grow the enterprise or not.”
Discussing groceries in greater depth, Mr. Ashe said supercenters were pioneering in that customers shopped there both for general merchandise and food.
“So you could go shop for bananas and TVs in the same place,” he said. “Well, Walmart.com now is starting to do the same thing as we start to expand the grocery offering and provide that.
“We think that Wal-Mart has brand permission to sell everything to everyone, and our sweet spot is that value conscious customer. And now with the integration of digital physical we can offer them price assortment, experience and access in ways that no one else can.”
Wal-Mart believes a strong e-commerce presence will deepen its relationship with customers, both for general merchandise and for grocery, Mr. Ashe said.
The effort will “add services for customers that are not traditional in a mass-market discount retailer,” he said.
Progress in e-commerce at its subsidiary in the United Kingdom, ASDA Stores, Ltd., raises Wal-Mart’s confidence in the potential for groceries as part of its U.S. initiative. ASDA, which sells food and general merchandise and is the second largest retailer in the United Kingdom, has its roots in the supermarket business. In February, Wal-Mart said ASDA on-line sales had been “remarkably strong,” even in a highly competitive retail environment across the U.K.
ASDA’s Click and Collect program allows consumers to shop on-line and then collect their groceries from one of numerous pickup points.
“ASDA continued to make Click and Collect easier for customers in stores, and with new pickup points at petrol stations, tube stations and other locations,” Wal-Mart said. “We now have Click and Collect in all ASDA stores.”
Three months later, in May, the company said, “ASDA’s grocery home shopping continues to drive double-digit growth, and we are sharing this expertise around the world to test delivery and pickup services in more locations.”
Expanding this capability elsewhere, Wal-Mart announced plans for an e-commerce fulfillment center in Brazil and plans for four to be opened in the United States by the end of 2015.
One of those opened last week — a 1.2-million-square-foot facility in the Majestic Bethlehem Center, in Bethlehem, Pa. The center features automation and warehousing systems.
Asked about trends in in-store pickup, Mr. Ashe said general merchandise and grocery are not moving in the same direction.
“Over time we think the customer will kind of merge those, but they don’t now,” he said. “And so, they are different. The pickup portion of our general merchandise e-commerce business has trended down… Grocery has behaved differently.”
Mr. Ashe said for a time home delivery was the only e-commerce option for ASDA shoppers.
“As we have added pickup, Click and Collect has shot up as a percentage,” he said. “And it makes sense, right? Because who here likes the cable guy, and who wants to have to be there when your groceries arrive. Generally you have to be there when your groceries are delivered. That can be a hit or miss proposition no matter how good you are.
So I am already driving past Wal-Mart, I can pull in, have my groceries in my car in 5 minutes and be on my way. That is the customer experience that people would want. We want you to have a relationship with Wal-Mart, and we want to serve that relationship more effectively than anyone else can.”
Mr. Ashe cited a host of reasons grocery e-commerce sales have grown slower when other sectors have thrived on-line. This litany began with a forthright description of the challenges inherent in the component parts of what Wal-Mart is seeking to achieve.
“Retail is a hard business,” Mr. Ashe said. “Internet is a hard business. So Internet retail is a really hard business. Grocery is a hard business. So grocery Internet retail is a really, really hard business. And we like that.”
He also addressed why grocery sales generally and Wal-Mart in particular have made only plodding progress on-line while its ASDA business in the United Kingdom has been growing for a decade or longer.
“The reason you haven’t seen us go faster in the U.S. is that the customer hasn’t really adopted it yet,” he said. “And the difference between the U.K. and the U.S. is obvious. What is it, 5 times the number of people and 25 times the amount of space? So the question is, how and when?”
Those differences aside, Mr. Ashe said Wal-Mart is “taking everything we have learned at ASDA” and is applying it in the United States in a range of test markets — Denver; Phoenix; Huntsville, Ala.; and northwest Arkansas.
The slow start notwithstanding, Wal-Mart is committed, Mr. Ashe said, offering three reasons:
1 – “Because we know it is what we need to do for our customer.”
2 – “Because we are demonstrating we are getting pretty good at it.”
3 – “Because we can afford it.”