Last week, Wal-Mart Stores Inc. announced that it’s preparing to ramp up its Internet efforts by cutting a deal with Books-A-Million Inc. to supply and deliver books for its online store. This action has resurrected the legion of analysts, who have been howling in unison for months, predicting that the giant retailer will soon pulverize Amazon.com into oblivion. But, I for one, don’t think they’re right — even though I’m in the minority.
The agreement outlines how the world’s largest retailer will depend on third parties to handle orders and ship some merchandise bought at Wal-Mart’s Web site when it launches its expanded offerings this fall. I see this as a halfway measure by Wal-Mart — or even worse — a sign that the retailer doesn’t really understand how the Internet works. A successful e-commerce site is built by developing site loyalty through unique products and services — not from a few offerings, obviously made on the cheap.
Nevertheless, the announcement from the Bentonville, Arkansas-based retailing giant sent Books-A-Million shares skyrocketing up to almost $14 (US$) per share, or an 84 percent increase. Yet, Wal-Mart stock dropped 50 cents per share to close at $47.75 the day of the announcement.
The flaw in Wal-Mart’s approach is that instead of creating a separate e-commerce entity and buying up the necessary components it needs to swiftly compete with an Amazon.com, it’s relying on a cautious, linear game plan that will be seen as laughable by its agile e-commerce competitors. They all must be sighing in collective relief — redoubling their efforts, as Wal-Mart will inevitably find down the road, that it must reinvent its e-commerce strategy once again.
Perhaps, Wal-Mart is looking for a risk-free way to enter the e-commerce arena. There is no such thing. Last week Starbucks Corp. brought this lesson home when it announced that it would have a 10 percent earnings shortfall in the year ending October 3rd, because of the money it’s pumped into its Internet strategy. Investors reacted to the bad news, and the coffee giant lost $1.91 billion off of its market cap Thursday.
What many brick-and-mortar merchants are finding, is that the transition to e-commerce is not just like opening another store: it’s like starting an entirely new business. But there’s another factor that could make Wal-Mart’s entry into cyberspace even bumpier that it has been already: arrogance. Only time will tell.