CASESTUDY Wal-MartOnline Wal-MartisoneofthelargestcompaniesinAmerica.Itisdefinitelythelargestretailer,both intermsofthenumberofstores(8,970worldwidein2011)andthelevelofsales($419billion fromthe2011AnnualReport).Bypushingsupplierstocontinuallyreducecosts,Wal-Martis knownforpursuinglowpricesandthestoresoftenattractcustomerssolelyinterestedinlower prices.WithWal-Martsexpansionintogroceries,thecompanyhasbe-comethelargestretail grocerinAmerica.Evenby2002,over100millionAmericansvisitaWal-Martstoreinagiven week(PressAction2002).Yet,Wal-Marthasstruggledintheonlineworld.Thecompanyhas triedseveralapproachestosellingphysicalanddigitalproductsonline.Fromelectronicsto books,music,andmovierentals,thecompanyhasannouncedmanydifferentonlinestores. Wal-Marthasstruggledwithmostofitsattempts,whileAmazoncontinuestogrowandexpand ine-commercesales.AlthoughAmazonhasafractionofthetotalsalesofWal-Mart,Amazon issubstantiallylargerinonlinesales.WhichraisestheultimatequestionofwhatWal-Martis doingwrong,orwhatitneedstodotogetalargershareofonlinesales. Background ManyarticlesandbusinesscaseshavebeenwrittenaboutWal-Mart.Mostcustomersare probablyfamiliarwiththestoreandtheoverallconcepts,butaconsiderableamountofwork takesplacetomanagethelargeinventory,suppliers,pricing,customers,andemployees.Wal- Marthasbeenaleaderinusinginformationtechnologytoreducecosts.Ahugepartof succeedinginretailingistoprovidetherightproductsinthestoresattherightprice,whencustomerswanttobuythem.Tosucceed,Wal-Martneedstoforecastdemandforeveryproduct ineverystore.Eachproductcanhavemultiplevariationssuchassizeorcolor.Individual itemsarecommonlyidentifiedwithanSKUnumber(stock-keepingunit),pronouncedskew. AnyWal-MartstorehastensofthousandsofSKUs.Ofcourse,allofthisdataneedstobe trackedbyIT.Wal-Martalsocantrackpersonalpurchasesbasedoncreditanddebitcards. AllofthedatafromeverystoreiscollectedandsenttothecentralserversatBentonville, Arkansas. In2002,Wal-Martprimarilyfocusedonusingitshome-growncustomcodeonitscentralized systems(Lundberg2002).Inaninterview,CIOKevinTurnernotedthatakeytoWal-Marts successwascontinuedstrivingtoimprove.HisgoalsfortheITorganizationareto(1)runa centralizedoperation,(2)usecommonplatforms,and(3)bemerchantsfirstandtechnologists second.Hisfirsttwoconditionsareimportanttoholdingdowncosts.Italsomakesiteasier totransferpersonnelamongstores.Turnernotedthattheprocesswaschallengingwhenthe standardizedsystemswerefirstintroducedtostoresinothercountries.Theanswerwastobuild aflexiblesystemthatstillallowedlocalmanagerstomakedecentralizeddecisionsbutusing centralizeddata.TurneremphasizestheimportanceofmatchingITtothebusinessneedsand simplifyingalltasks.Asonestepindevelopingsystems,theITdepartmentrequiresdevelopers togooutandperformthefunctionbeforewritingsystemspecificationsordesigningchanges. Forexample,adevelopermightspendadayworkingacashregistertounderstandthepressure anddata-entryrequirements. Evenasearlyas2002,Wal-MartwasworkingonRFID.Withanefforttoreducecostsper chip,theultimategoalwastoreplacebarcodeswithRFIDchips.Evenusingthechipsatthe warehouselevelwouldmakeiteasierandfastertoidentifyandroutepackages.Eveninthe store,findingproductscanbeaproblem.CarolynWalton(norelationtothefounder),an analystnotedthatwhenshewasworkingonthefloor,itoncetookthemthreedaystofinda boxofaspecifichairsprayinthebackroomresultinginlostsales.Iftheboxhadbeentagged withRFID,itcouldhavebeenfoundinminuteswithahand-heldscanner. TurnernotedthatWal-Martalsospendsaconsiderableamountoftimeinthere-searchlabsof itstechnologypartnersworkingwithuniversitiesandcompaniestoseewhichtechnologies willbeusefulandhowtheymightbemodifiedtoapplytoWal-Martsproblems. In2003,LindaDillmanbecameCIOofWal-Mart(Sullivan2004).Oneofherbiggestprojects wastheintroductionofRFIDtags,buttheITdepartmentwasalsoworkingon2,500business- technologyprojects.Aswithmostprojects,thebulkoftheRFIDworkwasdoneusingin-house programmersandsoftwarewithnooutsourcing.Despiteitslargestaffandheavyinvolvement,Wal-MartspendslessthantypicalretailersonITbelowonepercentof worldwiderevenue. In2004,a423-terabyteTeeradatasystemwastheheartofthesystemusedtostoreandanalyze themainsalesdata.Dataiscollectedfromthestoresonanhourlybasis,cleanedandtransferred tothedatawarehouse.Managerscanmonitorsalesinrealtimeandmakealmostinstant correctionsonthesalesfloor.Intermsofe-commerce,thecompanyeventuallymovedto IBMsWebSpheresystemlargelyforitsscalability. In2006,LindaDillmanrepeatedthemainpointsthatdrivetheITdepartment:(1)merchants first,(2)commonsystemsandplatforms,and(3)centralizedinformationsystems.Asecondary benefitofthecentralizedapproachisthatthedatawarehouse(RetailLink)isprovidedtothe supplierswhocanalsomonitorsalesinrealtimetohelpthemplanproductionruns.The systemalsoenablesthemtotrackthestatusofshipsthroughthedistributioncenterstotheretail stores.Providinganothersetofeyesandanalystsintrackingsalesandshipments. By2010,Wal-Martwasprocessingoveronemillioncustomertransactionsanhour;generating databasesestimatedtocontainatleast2.5petabytes(Economist2010).RollinFord,theCIO in2010emphasizedtheimportanceofprocessingandanalyzingthehugeamountofdata: EverydayIwakeupandaskhowcanIflowdatabetter,managerdatabetter,analyzedata better,(Economist2010). E-Commerce In2011,Wal-Martappearstohaveshiftedpartofitsonlinestrategy.Twoleadingmanagers, RaulVazquezinchargeofglobale-commerceindevelopedmarkets,andSteveNave,whoran theCalifornia-basedWalmart.comleftthecompany(Bustillo2011).Thecompanyalso announcedthatitwasendingthesaleofdownloadedmusic(asteptheyhadalsotakenyears before).Partoftherestructuringappearstoshifte-commerceresponsibilitytoman-agersin individualnations.Regionalmanagerswereappointedtobeinchargeofnationswithinspecific sectors,suchasLatinAmerica,Asia,andEurope. AlthoughWal-Martdoesnotreportsalesforthee-commercedivision,InternetRetailer estimatesthatintheU.S.andCanada,Wal-Martgeneratesabout$4billioninsalesmaking itthesixthlargestbehindnotonlyAmazon,butStaplesandOfficeDepot(Bustillo2011). Interestingly,Wal-Mart,throughASDAprovidesonlinegroceryshoppinginBritain. Vudu Wal-MartboughtVuduin2010forareported$100million;anonlinesitethatprovidesrentals andpurchasesofdigitaldownloadsforHollywoodmovies.Withinayear,thesitehadbecomethethird-mostpopularstreamingsiteontheWeb.However,thebigtwo(iTunesat65.8percent andMicrosoftZuneVideoat16.2percent)dominatethe5.3percentmarketshareofVudu.On theotherhand,Wal-Martdroppeditsmusicdownloadsin2011becauseofpoorperformance. EdwardLichty,VuduGeneralManager,notedthatofferingfirst-runmoviesalacarteisdoing verywellrightnowandhastripledsofarthisyear,[BustilloandTalley2011].Tabletowners (includingtheiPad)candownloadmoviesthroughabrowserinterface,whichmeansVudu doesnothavetopayApples30percentcommissionfee.Vudualsohasagreementsinplace withmostmajorstudios,includingtherightstostreamandsellhigh-definitionmovies. However,itisnotclearhowVuduconnectstoWal-Martsales,orthatcustomersevenknow VuduisownedbyWal-Mart. AmazonandSalesTaxes UnderpressurefromlocalretailerspresumablyincludingWal-Martstategovernmentsare tryingtoenactlawsthatdirectlyaffectAmazon.Inparticular,Amazonhaslongavoid-ed collectingstatesalestaxesonsalesbyarguingthatthecompanydoesnothaveaphysical presenceinmoststates.However,inanattempttoattractmoresalestoitssite,severalyears agoAmazonestablishedanaffiliateprogramwhereanyonewithaWebsitecouldsetupa linktodirectpotentialcustomerstoAmazon.Thepartnersthencollectedatinypercentageof thesalesrevenue.Severalstatesrewrotetheirtaxlawstodefinethesepartnershipsascreation ofaphysicalnexusthatopenedthedoortotaxingallsalesfromAmazon.Inresponse, Amazondroppedtheprograminseveralstates,challengedthelawdirectlyinNewYork,and thenofferedacompromiseinCalifornia[TheWallStreetJournal9/11/2011].The compromise,signedinSeptember2011,delaysthecollectionoftaxesfromAmazonforone yearandallowsAmazontorunitsaffiliateprograminCalifornia.Atonepoint,Amazon suggestedthatitwouldalsobuildanewdistributioncentertobringjobstoCalifornia,butitis notclearifthatprovisionsurvivedthenegotiations.Overall,retailstoresandlegislaturesare tryingtoleveltheplayingfieldsothatallpurchaseswillbesubjecttostatesalestaxes. Technically,thestatelawsarewrittensothatcitizensofastatewhopurchaseitemsfromout- of-statevendorsarerequiredtopaytheusetaxesevenwhenthesellerdoesnotcollectthem. Thestatetaxformshaveanentrylineforlistingthepurchasesandthetaxowed.Onlyafew peoplevoluntarilypaythistax.Statescontinuetostretchthedefinitionstoforceout-of-state companiestocollectthetaxes,buttheyhavelosteverycourtcaseattheU.S.SupremeCourt becausetheU.S.Constitutionforbidsstatesfrominterferingwithinterstatecommerce. AmazonandTargetForseveralyears,Target,adirectcompetitortoWal-Mart,reliedonAmazontohandleitsWeb sales.TheAmazonWebsitedisplayedtheproductsandprocessedthepayments.Inmostcases, Amazonalsohandledthewarehouseoperations,shippedtheproducts,andhandledcustomer service.Essentially,TargetoutsourcedtheentireWeboperationstoAmazon.Aftertwo-years indevelopment,in2011,TargetlauncheditsownWebsite.Atthatpoint,Targetwillstop sellingitemsonAmazonssite.In2010,Targethad$1.33billioninU.S.sales,makingitthe 23rdlargestonlineretailer.[ZimmermanandTalley2011].TargetsaidthenewWebsitewill morecloselymatchthein-storeexperienceandthatitwillbeabletocarryabiggerassortment ofproductswithasmanyas800,000productswithfreeshipping(probablyfreetopickupat alocalstore). Wal-MartSalesData In2011,Wal-Martshookupthemarketingworldbydeclaringthatsalesdatafromitsstores wasastrategicassetandthecompanywouldnolongerprovideaccesstothedatatooutsiders. Adecadelater,inJuly2011,Wal-MartagreedtoprovideaccesstoitssalesdatatoNielsen themarketresearchcompany.Inthemeantime,thesalesclimatehadchanged,fromthehigh- increasesoftheearly2000stoeight-consecutivequartersofdecliningsalesin2010fromstores openatleastayear.CindyDavis,newlyappointedasWal-Martexecutivevicepresidentfor globalcustomerinsightsnotedthatWeplantoshareourpoint-of-saleinformationtohelpus identifycategorygrowthopportunitiessoonerandcollaboratewithourmanufacturerpartners todevelopmoreimpactfulcustomer-drivenprogramsgoingfor-ward[ZimmermanandLamar 2011]. CaseQuestion5.Writeareporttomanagementthatdescribestheprimarycauseoftheproblems,adetailed plantosolvethem,andshowhowtheplansolvestheproblemsanddescribeanyotherbenefits itwillprovide.