Wal-Mart can’t beat ’em, so they’ll become ’em5/27/2015
The last two decades have been rough for traditional brick-and-mortar businesses. Prior to the rise of e-commerce, finding commercial success meant juggling quality products, store location, correct pricing, supply, demand and much more than could possibly be squeezed into this column. Now with the Internet firmly in place as the No. 1 destination for buying goods, it seems the only variables that matter to consumers are price and shipping. This change in consumer motivation hurts business owners big and small, but if you actually crunched the numbers, don’t be surprised to discover that big box stores are hurt the most.
Consider for a minute the overhead of a Best Buy or Target. Both stores operate roughly 2,000 stores across the country, each with dozens of employees, thousands of pieces of merchandise and other expenses just to keep the lights on. Now imagine the Internet comes along and rising with it is Amazon, a goliath online retailer with fewer employees, no storefront overhead and undercutting the price of every item you have on your shelves. Conservatively, if one million shoppers abandon Best Buy a year in favor of Amazon, that will quickly start impacting the bottom line.
This scenario is not a hypothetical. K-Mart, Circuit City and Radio Shack are but a few retailers that have been humbled or completely shuttered before the mighty online retail marketplace. How do we know this situation is serious and not just natural attrition of weak companies? Because Wal-Mart is starting to model its business like the very online retailers that are stealing its customers.
Starting this year, Wal-Mart plans to offer a trial shipping service code-named “Tahoe,” wherein online customers get free three-day shipping on certain purchases for an annual $50 fee. If that plan sounds familiar, it’s because Wal-Mart basically copy-and-pasted it from Amazon Prime’s website. For 10 years now, Amazon has been offering a similar service where, for $100, Amazon customers get free two-day shipping, plus access to instant streamable movies and TV shows, free music downloads, a lending library of eBooks and unlimited online photo and video storage.
While Wal-Mart is the largest retailer on the planet, it is in no shape to match Amazon service for service. Without the online infrastructure to offer eBooks, streaming media or online storage, Wal-Mart’s half-price offer is more necessity than a threat to Amazon. Whether or not Prime makes money for Amazon doesn’t matter; it has proven to turn frequent online shoppers into avid shoppers. Amazon customers who are also Prime members spend nearly twice as much through the online retailer. The thought being if they have free shipping, they’ll make the most of it.
The easy conclusion is that Wal-Mart is going after customers lost to Amazon. But it’s much more about changing the definition of what Wal-Mart is. Wal-Mart will always be the place where you can drive at 3 a.m. in your pajamas to buy diapers, a rifle and Jack Daniels, but it would also like you to know all those items can be purchased from the comfort of your couch, sans pajamas. See, Wal-Mart doesn’t care if Tahoe ends up costing the company more than it makes; the hope is it will shift consumer focus from Wal-Mart being the big box store down the road to a retailer available online as well.
Should Wal-Mart succeed in redefining its primary sales medium, expect many others to follow suit. In 10 years, everyone from Von Maur to Pizza Hut could have an Amazon Prime clone. Although two-day shipping on pizza doesn’t sound like a great perk. CV
Patrick Boberg is a central Iowa creative media specialist. Follow him on Twitter @PatBoBomb.