Both Wal-Mart and Target’s Web sites experienced glitches on Cyber Monday, an issue that might have been solved by hiring a third party to take overflow orders if the sites themselves couldn’t handle the volume.
This story first appeared in the December 16, 2015 issue of WWD. Subscribe Today.
The traffic overload was an Internet 101 type of issue that both retailers are working to resolve.
“Amazon has a huge advantage over Wal-Mart in that it knows its customers and knows what they want,” said Craig Johnson, president of Consumer Growth Partners, adding that Target captures consumer data from proprietary Red Card customers.
Amazon’s shopper information is accumulated through Prime, a program that builds loyalty and increases sales for the digital giant. Prime members receive for $99 free two-day delivery on selected items.
“Once they’re locked in, Prime members tend to maximize their use of the Amazon ecosystem,” said Carol Spieckerman, president of Spieckerman Retail. “They want to make the most of their investment so they accelerate their purchasing. Prime is a juggernaut that’s been very difficult to arrest. It’s a self-perpetuating growth engine.”
Spieckerman said Prime has created category opportunism. “As Prime shoppers increase their frequency, their trust in the categories they buy increases. That’s allowed Amazon to go into new categories such as apparel.”
A survey by Cowen and Co. found that more shoppers turned to Amazon than Wal-Mart or Target to buy apparel last month.
In 2014, Amazon’s online sales were $89 billion, easily surpassing Wal-Mart’s $12.2 billion in e-commerce sales. Target’s online sales are estimated at $3 billion; the retailer doesn’t break out digital sales in volume. Alibaba’s sales of $250 billion in 2014 dwarf those of Amazon, but the Chinese company has been accused of selling counterfeit or defective goods on its sites and still needs to gain the trust of American consumers.
Both Wal-Mart and Target are trying to get some traction. “Target is still in the very early stages in terms of fine-tuning its clicks-to-bricks proposition,” Spieckerman said. “Wal-Mart’s e-commerce numbers are slowing down. It’s a more mature market than Target.”
Where Wal-Mart could best Amazon might be in grocery and fresh food. The mass retailer has been aggressively rolling out Neighborhood Markets, which for all intents and purposes, are grocery stores. “Drive-through pickup gives Wal-Mart the opportunity to leverage its more expansive assortments,” Spieckerman said. “It’s a convenience option. That’s something that Amazon can’t do. At the end of the day, they’re trying to create dependencies and convenience is a way to do that.”
Wal-Mart is investing heavily in digital initiatives, especially its online grocery shopping. There are automated collection points for orders, drive-through pickups for groceries and pop-up pickup locations for other merchandise.
Johnson said it’s difficult for Amazon to compete with Wal-Mart’s grocery business, which accounts for 57 percent of the retailer’s sales.
Despite earmarking $1.1 billion for technology in 2015 and the same amount for 2016, “Wal-Mart has been losing on the Internet to Amazon almost since its inception,” Johnson said. “Wal-Mart’s comps in the [fourth] quarter will be fractionally positive due to the Internet, but store comps will be negative.”
Target boasted a 50 percent increase in digital conversion last year and three times the sales of average competitors. Ninety-eight percent of Target guests shop digitally and the vast majority use a mobile device. Mobile conversion is at 69 percent. The retailer has created such digital enhancements as a Zero Click auto-replenishment service for everything from diapers to skin-care products, with the option of home delivery or in-store pickup.
“Target has room for acceleration,” Johnson said.
Target earmarked $1 billion this year for investments in technology and supply-chain enhancements “to make sure we’re partnering up technology with the ability to provide the product effectively through our supply chain,” the company said.
Unlike Wal-Mart and Target, Amazon, despite its $89 billion scale, has yet to be consistently profitable.