Wal-Mart Online

Wal-Mart is one of the largest companies in America. It is definitely the largest retailer, both in terms of the number of stores (8,970 worldwide in 2011) and the level of sales ($419 billion from the 2011 Annual Report). By pushing suppliers to continually reduce costs, Wal-Mart is known for pursuing low prices and the stores often attract customers solely in-terested in lower prices. With Wal-Mart's expansion into groceries, the company has be-come the largest retail grocer in America. Even by 2002, over 100 million Americans visit a Wal-Mart store in a given week (Press Action 2002). Yet, Wal-Mart has struggled in the online world. The company has tried several approaches to selling physical and digital products online. From electronics to books, music, and movie rentals, the company has an-nounced many different online stores. Wal-Mart has struggled with most of its attempts, while Amazon continues to grow and expand in e-commerce sales. Although Amazon has a fraction of the total sales of Wal-Mart, Amazon is substantially larger in online sales. Which raises the ultimate question of what Wal-Mart is doing wrong, or what it needs to do to get a larger share of online sales.

Background

Many articles and business cases have been written about Wal-Mart. Most customers are probably familiar with the store and the overall concepts, but a considerable amount of work takes place to manage the large inventory, suppliers, pricing, customers, and employ-ees. Wal-Mart has been a leader in using information technology to reduce costs. A huge part of succeeding in retailing is to provide the right products in the stores at the right price, when customers want to buy them. To succeed, Wal-Mart needs to forecast demand for every product in every store. Each product can have multiple variationssuch as size or color. Individual items are commonly identified with an SKU number (stock-keeping unit), pronounced "skew." Any Wal-Mart store has tens of thousands of SKUs. Of course, all of this data needs to be tracked by IT. Wal-Mart also can track personal purchasesbased on credit and debit cards. All of the data from every store is collected and sent to the central servers at Bentonville, Arkansas.

In 2002, Wal-Mart primarily focused on using its home-grown custom code on its centralized systems (Lundberg 2002). In an interview, CIO Kevin Turner noted that a key to Wal-Mart's success was continued striving to improve. His goals for the IT organization are to (1) run a centralized operation, (2) use common platforms, and (3) "be merchants first and technologists second." His first two conditions are important to holding down costs. It also makes it easier to transfer personnel among stores. Turner noted that the process was challenging when the standardized systems were first introduced to stores in other coun-tries. The answer was to build a flexible system that still allowed local managers to make decentralized decisions but using centralized data. Turner emphasizes the importance of matching IT to the business needsand simplifying all tasks. As one step in developing systems, the IT department requires developers to go out and perform the function before writing system specifications or designing changes. For example, a developer might spend a day working a cash register to understand the pressure and data-entry requirements.

Even as early as 2002, Wal-Mart was working on RFID. With an effort to reduce costs per chip, the ultimate goal was to replace bar codes with RFID chips. Even using the chips at the warehouse level would make it easier and faster to identify and route packages. Even in the store, finding products can be a problem. Carolyn Walton (no relation to the 109

founder), an analyst noted that when she was working on the floor, it once took them three days to find a box of a specific hair spray in the back roomresulting in lost sales. If the box had been tagged with RFID, it could have been found in minutes with a hand-held scanner.

Turner noted that Wal-Mart also spends a considerable amount of time in the re-search labs of its technology partnersworking with universities and companies to see which technologies will be useful and how they might be modified to apply to Wal-Mart's problems.

In 2003, Linda Dillman became CIO of Wal-Mart (Sullivan 2004). One of her biggest projects was the introduction of RFID tags, but the IT department was also working on 2,500 business-technology projects. As with most projects, the bulk of the RFID work was done using in-house programmers and softwarewith no outsourcing. Despite its large staff and heavy involvement, Wal-Mart spends less than typical retailers on ITbelow one percent of worldwide revenue.

In 2004, a 423-terabyte Teeradata system was the heart of the system used to store and analyze the main sales data. Data is collected from the stores on an hourly basis, cleaned and transferred to the data warehouse. Managers can monitor sales in real time and make almost instant corrections on the sales floor. In terms of e-commerce, the company eventually moved to IBM's WebSphere systemlargely for its scalability.

In 2006, Linda Dillman repeated the main points that drive the IT department: (1) merchants first, (2) common systems and platforms, and (3) centralized information sys-tems. A secondary benefit of the centralized approach is that the data warehouse (RetailL-ink) is provided to the supplierswho can also monitor sales in real time to help them plan production runs. The system also enables them to track the status of ships through the dis-tribution centers to the retail stores. Providing another set of eyes and analysts in tracking sales and shipments.

By 2010, Wal-Mart was processing over one million customer transactions an hour; generating databases estimated to contain at least 2.5 petabytes (Economist 2010). Rollin Ford, the CIO in 2010 emphasized the importance of processing and analyzing the huge amount of data: "Every day I wake up and ask 'how can I flow data better, manager data better, analyze data better,'" (Economist 2010).

E-Commerce

In 2011, Wal-Mart appears to have shifted part of its online strategy. Two leading managers, Raul Vazquez in charge of global e-commerce in developed markets, and Steve Nave, who ran the California-based Walmart.com left the company (Bustillo 2011). The company also announced that it was ending the sale of downloaded music (a step they had also taken years before). Part of the restructuring appears to shift e-commerce responsibility to man-agers in individual nations. Regional managers were appointed to be in charge of nations within specific sectors, such as Latin America, Asia, and Europe.

Although Wal-Mart does not report sales for the e-commerce division, Internet Retailer estimates that in the U.S. and Canada, Wal-Mart generates about $4 billion in salesmaking it the sixth largestbehind not only Amazon, but Staples and Office Depot (Bustillo 2011). Interestingly, Wal-Mart, through ASDA provides online grocery shopping in Britain. 110

Vudu

Wal-Mart bought Vudu in 2010 for a reported $100 million; an online site that provides rentals and purchases of digital downloads for Hollywood movies. Within a year, the site had become the third-most popular streaming site on the Web. However, the big two (iTunes at 65.8 percent and Microsoft Zune Video at 16.2 percent) dominate the 5.3 percent market share of Vudu. On the other hand, Wal-Mart dropped its music downloads in 2011 because of poor performance. Edward Lichty, Vudu General Manager, noted that "offering first-run movies a la carte is doing very well right now and has tripled so far this year," [Bustillo and Talley 2011]. Tablet owners (including the iPad) can download movies through a browser interface, which means Vudu does not have to pay Apple's 30 percent commission fee. Vudu also has agreements in place with most major studios, including the rights to stream and sell high-definition movies. However, it is not clear how Vudu connects to Wal-Mart sales, or that customers even know Vudu is owned by Wal-Mart.

Amazon and Sales Taxes

Under pressure from local retailerspresumably including Wal-Martstate governments are trying to enact laws that directly affect Amazon. In particular, Amazon has long avoid-ed collecting state sales taxes on sales by arguing that the company does not have a physical presence in most states. However, in an attempt to attract more sales to its site, several years ago Amazon established an "affiliate" program where anyone with a Web site could set up a link to direct potential customers to Amazon. The partners then collected a tiny percentage of the sales revenue. Several states rewrote their tax laws to define these "partnerships" as creation of a physical "nexus" that opened the door to taxing all sales from Amazon. In response, Amazon dropped the program in several states, challenged the law directly in New York, and then offered a compromise in California [The Wall Street Journal 9/11/2011]. The compromise, signed in September 2011, delays the collection of taxes from Amazon for one year and allows Amazon to run its affiliate program in California. At one point, Amazon suggested that it would also build a new distribution center to bring jobs to California, but it is not clear if that provision survived the negotiations. Overall, retail stores and legislatures are trying to "level the playing field" so that all purchases will be subject to state sales taxes. Technically, the state laws are written so that citizens of a state who purchase items from out-of-state vendors are required to pay the "use taxes" even when the seller does not collect them. The state tax forms have an entry line for listing the purchases and the tax owed. Only a few people voluntarily pay this tax. States continue to stretch the definitions to force out-of-state companies to collect the taxes, but they have lost every court case at the U.S. Supreme Court because the U.S. Constitution forbids states from interfering with interstate commerce.

Amazon and Target

For several years, Target, a direct competitor to Wal-Mart, relied on Amazon to handle its Web sales. The Amazon Web site displayed the products and processed the payments. In most cases, Amazon also handled the warehouse operations, shipped the products, and handled customer service. Essentially, Target outsourced the entire Web operations to Amazon. After two-years in development, in 2011, Target launched its own Web site. At that point, Target will stop selling items on Amazon's site. In 2010, Target had $1.33 billion in U.S. sales, making it the 23rd largest online retailer. [Zimmerman and Talley 2011].

Target said the new Web site will more closely match the in-store experience and that it will be able to carry a bigger assortment of productswith as many as 800,000 products with free shipping (probably free to pick up at a local store).

Wal-Mart Sales Data

In 2011, Wal-Mart shook up the marketing world by declaring that sales data from its stores was a strategic asset and the company would no longer provide access to the data to outsiders. A decade later, in July 2011, Wal-Mart agreed to provide access to its sales data to Nielsenthe market research company. In the meantime, the sales climate had changed, from the high-increases of the early 2000s to eight-consecutive quarters of declining sales in 2010 from stores open at least a year. Cindy Davis, newly appointed as Wal-Mart executive vice president for global customer insights noted that "We plan to share our point-of-sale information to help us identify category growth opportunities sooner and collaborate with our manufacturer partners to develop more impactful customer-driven programs going for-ward" [Zimmerman and Lamar 2011].

Case Questions:

1. Please explain in details what are Walmart main business challenges?

2. Please explain how Walmart currently uses IS/IT to improve sales and manage its business and relate to what you learned in this course.

3. Determine an MIS strategy for Wal-Mart to improve online sales only. Please start by discussing why you think their sales are low and their strategy is not working and what they should and implement to improve it. Please be very specific and very detailed in your strategy and what you would do if you were the CIO of Walmart.

3. According to you, and illustrated by your knowledge of the MIS class, what makes selling online successful? Please provide examples from the market and explain in details why companies like Amazon are successful, according to you, in their use of IS and IT.