Amazon set the standard for online retail in an unsettling way. Following Amazon’s model, the way to dominate market share is by posting a loss … over and over again. Amazon didn’t actually make a profit until 2009 after being in business for 15 years.
Online-only retailer Jet jumped onto the scene in July and is the fresh face of loss leadership in online retail after dropping its $50 subscription fee, the only source of its originally planned profits.
So why is everyone up in arms about Walmart’s recent announcement that it’s expecting lackluster returns for the next two years? Last week, Walmart CEO Doug McMillon announced that the mega-retailer would be investing heavily in eCommerce as well as employee wages. This is expected to take a large chunk out of its profits and has retail experts shaking in their boots.
Is it the end of an era or the beginning of a new chapter? I strongly believe in the latter.
Walmart’s plan might seem strange based on the seniority of the retailer, but the longer it treats its online channels as add-ons to its well-established stores, the longer it’ll have to accept the reality that Amazon is calling the shots.
Even Macy’s has 8 percent of sales coming from online channels, compared to just 3 percent for Walmart. Now couldn’t be a better time for Walmart to buckle down and really concentrate on its online presence.
Consumers know that Amazon is the king of pure-play retail, but Walmart is just now understanding how fast online retail is growing. As digital natives gain more purchasing power, online retail has to be a priority for all retailers, especially since its growth consistently outpaces traditional brick and mortar retail.
Walmart stores may be close to most shoppers in the US, but in order to pack a punch in the retail ring, it will have to get serious about online retail. And that’s precisely what it’s doing. Even if the timing is a bit out of order compared to most retailers, now’s the time to endure the pain to reach the much needed gains.
Competitors will need to brace themselves. Walmart means business and certainly wouldn’t have announced such a drastic plan without confidence that it will succeed. We’ll know for sure after the two years are up.
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