Wal-mart has four problems in online retail Amazon is offering a large selection of products Consumers are increasingly purchasing on Amazon and they are buying product that they were previously buying in offline retail channel

Amazon is currently less than 10% the size of Walmart but growing very fast (45% YoY in US) rate. Walmart is growing at 0.6% YoY (US retail) Wal-Mart’s online sales were ”less than 2% of its $264 billion in U.S. revenue

Drivers of Online shopping Price: Low price compared to brick and mortar outlets Convenience – Free home delivery/ Some cash Variety: many products on different sites can be compared simultaneously Products which are not in inventory can also be displayed

How low price being managed? Online retailers need to have low COGS and low Opex and probably low profit margin Low Cost of goods sold – appropriate inventory management Low operating expenditure – Distribution and transportation management

Due to the robust product selection requirements for internet retailers, inventory segmentation offers a significant challenge. Deciding which products to carry in one's own distribution centers, versus wholesaler distribution centers, and manufacturer sites has an effect on the cost and service structure of internet retailers.

The number of distribution centers and their location are critical to the success of internet retailers. Selecting locations that minimize transportation costs while providing the expected level of customer service is critical.

In 2011

Amazon climbed the learning curve

Variety Online retailers have literally infinite shelf space whereas offline retailers have only a limited shelf space which too has an upfront and a maintenance cost associated with it. variety of items online does not necessarily entail an inventory cost.

Amazon can display products that it does not even have in its inventory or in extremely limited quantity. So the cost is low to zero. For variety three business models followed Ally with competitors to display their products on your site, your product on their site or solely your product, your side

Providing variety The base Amazon.com sales channel is the web store front-end that serves as the core of their business. Customers go to the Amazon.com website, browse for products, and place orders. Amazon.com is responsible for all front-end customer relationships and back-end logistics in this model

Once an order is placed, Amazon.com decides which internal distribution center or drop shipper should be responsible for shipping the order to the customer. Amazon is responsible for coordinating the fulfillment of the order. When products are sourced from its internal distribution centers, Amazon.com picks, packs, and ships the order.

When products are sourced from a drop shipper, such as a book distributor, the distributor packages the item in an Amazon.com box and take it to customer

Broadly in this model, Amazon.com owns the customer relationship, provides the technology, owns or purchases the inventory, and executes the logistics of each order.

Syndicated Stores Another part of Amazon.com as a seller model includes the Syndicated Stores program, which allows third-party companies to sell Amazon.com products through their websites. In this model, Amazon.com does not own the initial customer relationship, but does provide the technology, inventory, and logistics to deliver the order to the customer, and thus owns the customer service relationship.

Amazon.com pays a percentage of each sale made to the syndicated store that provided a link to Amazon.com on its website. Borders, CDNow, HMV, Virgin, Waldenbooks, and Waterstones

Initiated in 2000, the Amazon Marketplace and programs allow third-party companies to list their products on Amazon.com's website. Marketplace serves individual sellers and smaller companies. Amazon.com manages the front-end customer relationship, provides the technology, but typically not the inventory, fulfillment and delivery services in these arrangements.

Strategy for Wal-mart Rebuilding business model or adding new business models? Complete online strategy or multichannel strategy?

Walmart – Click and Mortar strategy Leveraging on technology to offer unique shopping experience to customers - Threshold resource - User friendliness of web portal – proprietary and licensing technology - Poor search engine of wal-mart – existing products couldn’t be searched - According to USAtoday.com – Amazon most user friendly and bug free

Provision of of information - enhances the online shopping experience and bring it close to the physical retailers - surf through some pages of its books or preview music by virtue of demo sound displays

:In the customer satisfaction survey conducted last year based on an American customer satisfaction index (Wal-mart was 10 points lower than amazon.com in terms of its online satisfaction behavior. - (Techjournal, 2012)

Gaps in current e-tailing business Competing on analytics – unique resource and capability - Customer Analytics can be the basis of competitive advantage - (a) socioanalytics of a consumer i.e. analyzing his social network behavior and tapping his sentiment and behavioral profile - (b) web analytics i.e. focusing on consumer’s net surfing profile - © market based analytics i.e. trying to analyze actual sales and buying behavior of a consumer.

With the establishment of Wal-mart labs in 2011, Wal- mart has pioneered in this direction and is trying to harness exact buying behavior of various customers - Anand Rajaraman - Head of research division (Wal- mart labs, e-commerce research division of wal-mart) Wal-mart launched shopycat, a Facebook application to track customer’s posts and comments and to help him/ her to find ideal gifts for friends and family (PCworld.com, 2011)

Competing on crowdsourcing – To prioritize shelf placement of products from small entrepreneurs and also to make them available online - Walmartlabs conducted on the shelf contest which has been a huge hit. - Crowdsourcing helps in bringing customer loyalty (Taylor, 2012)

Gaps in current e-tailing business Leveraging on current resources i.e. physical stores to create competitive advantage - In a survey conducted by paymentone it was found that 80% of consumers feared making online transactions. (Rowniski, 2011) - Current e-tailers do home delivery but leave baggages outside home when door is locked

Networking with competitors – Threshold resource As a consequence of Amazon’s tie ups with retailers, it can ship near 10 million products compared to basket of brick and mortar retailers like Wal-mart who are able to hold and ship merely 500,000 products These player charges 8-15% for offering their website as a third party marketplace. In a recent research conducted by Kanter, it was found that Amazon had no holes in its inventory, whereas 14 percent of the items in case of Walmart.com were out- of-stock. (Bloomberg, 2012)

Developing CA – unique capabilities Wal-mart has recently in 2009 started its third party market place by allying with online retailers like CSN stores, ebags.com Alliance between horizontal partners in e-retail industry is quite typical, thus managing online relationships is very critical. If strategic networks have to be the basis of competitive advantage for retailers like Wal-mart, then they need to get hold of more e-tailers and invest in relation specific assets

For example, they can offer better deals to e-tailers for their market place by charging less for usage of their web portal compared to what virtual retailers charge. In terms of logistics management, home delivery is always more expensive compared to the delivery of goods at one or two central locations.

Wal-mart can also extend alliances with other smaller retailers by offering them the availability of their store outlets for product delivery, with certain terms and conditions imposed.

Distribution Management – shipping and handling – Threshold resource The products available on Amazon’s virtual retail store are distributed and handled in mainly three ways Drop shipment and inventory holding via self warehouses and third party warehouse. Amazon makes real-time linkages with manufacturers, who then ship the goods directly to customers on the behalf of Amazon

i. e. for all the customer service and related functions Amazon remains responsible but saves cost in leasing warehouses and holding inventory by drop shipping some of the popular and frequently selling products it does keep in its inventory so as to avoid late delivery hassles or stock out problems with the manufacturer. So the Challenge which Amazon skillfully manages is deciding upon an appropriate mix of usage of three delivery models, though drop shipping remains the major one.

Searching CA – Unique capabiltiies Realizing its weakness in inventory management compared to Amazon, Wal-mart has recently in 2010, started dropshipping Just like in case of market place competitors, in case of drop shippers also, central shipping would be more convenient compared to home delivery. From this click and mortar can either increase its margin or lower the cost

In search of dynamic capabilities The challenge lies in reinvesting in their distribution and delivery skills as long waiting time in express delivery can upset customer to avail this service and thus, traditional retailers can lose their edge over virtual players.

Uncaptured product categories of online virtual retailers. Online retailers like Amazon have recently started investing delivery of green groceries. Product categories like green groceries, should give advantage to traditional brick and mortar firms over virtual internet players.

Wal-mart can exploit this advantage and by appropriate management of its virtual stores and building process management capabilities It can become preferred retailers for mass segment of customers.

The ultimate challenge of dynamic capabilities In other words they need to build capabilities of handling two different business models in such a way that they complement each other rather than compete with each other. - i.e. managing analytics - managing strategic networks - managing distribution (which is no longer same as its earlier supply chain) - managing express delivery process

Should pricing be basis of Competition Online retailing is suppose to offer low prices as they save in inventory holding and warehouse management. Amazon follows the same principle as it offers lower prices to loyal customers through its subscribes and Save program. this offer Amazon currently offers only on its 27% of the items.

Compared to brick and mortar retailers Amazon is especially ahead in general merchandise items like DVDs and CDs in terms of providing lower prices. Broadly in 45% category of items Walmart still offers lower prices compared to Amazon. However, customer can trade off low price for convenience and quality shopping experience