Wal-Mart Spins Off E-Commerce Operations

Wal-Mart Stores and Silicon Valley venture capital firm Accel Partners announced yesterday that they will join forces to form Wal-Mart.com, Inc.

The new independent company, based in Palo Alto, California, is designed to greatly accelerate the development of Wal-Mart's Internet site and to further attract offline customers to e-tailing via Wal-Mart's strong branding, company officials said.

Wal-Mart.com will have a separate board of directors and management team. Officials added that it will immediately begin recruiting a chief executive officer and senior management team.

The Wal-Mart.com board will include Rob Walton, chairman of Wal-Mart Stores, Inc., Lee Scott, vice-chairman and CEO of Wal-Mart, and James Breyer, managing partner of Accel Partners.

While neither company disclosed their initial investments in the new venture, rumors abound that both companies will make cash investments that total between $50 and $100 million (US$).

Could Go Public Soon

While industry observers concede that e-commerce currently contributes little to Wal-Mart's $165 billion in annual sales, the formation of a separate entity could allow the company to go public soon and take advantage of the current IPO frenzy to raise cash for working capital and acquisitions.

Location, Location, Location

"By locating this new company in the heart of Silicon Valley, we will have access to an outstanding talent base as well as emerging Internet technologies," said Lee Scott, vice-chairman and chief operating officer of Wal-Mart. "This puts Wal-Mart.com right where it needs to be, and should allow us to further develop our e-commerce business at both Wal-Mart and Internet speed."

The new partnership comes just six days after the retail behemoth unveiled its revamped Web site on the first day of the new year and only weeks after announcing a wide-ranging strategic alliance with AOL on December 16th.

That partnership includes a new co-branded online service and numerous cross-marketing initiatives between the two companies.

According to the Bentonville, Arkansas-based Wal-Mart, the newly launched site features about 600,000 products in new or expanded categories such as appliances, automotive products, pet supplies, baby items and health and beauty aids.

The site also provides travelers with online air, hotel and car rental services. Additionally, Wal-Mart customers who drop off film at one of its brick-and-mortar locations can opt to have the photos posted on the Internet and share their password with friends and relatives.

Accel Agreement Adds More Value

Scott also pointed out that Wal-Mart's "people deserve a lot of credit for the progress we've made with our existing site in such short order. Through their help and effort, we are positioned to take our site to another level."

Accel Partners managing partner James Breyer added that through its new venture with Wal-Mart, the company hoped "to establish a bridge for the digital divide."

Day of Reckoning for Amazon?

Meanwhile, industry analysts have long predicted that a strong Wal-Mart presence in cyberspace could seriously threaten the dominance of e-commerce giant Amazon.com.

Nonetheless, a spokesman for Amazon.com said last week that his company is not worried about Wal-Mart's latest moves.