Wal-Mart Stores, Inc. (NYSE:WMT) faces big and complex challenges. The company has long pitched itself as the low-price leader. The issue with competing only on cost is that you need always to have the lowest cost. Amazon.com, Inc. (NASDAQ:AMZN) hasn’t always outperformed Wal-Mart on prices. However, it has obtained a reputation of being the low-cost leader even as Wal-Mart has pitched itself that way.
Wal-Mart is failing in not owning the e-commerce space and not attempting to compete against Amazon, which is a poor strategy. Wal-Mart is losing because it has ignored the cost to serve.Many retailers particularly chain based retailers ignore the cost to serve as they do not wish to bear the cost.
It can be said that stores are a cost to serve along with employees present in them. However, only a tiny amount is actually spent on selling, and the rest is spent in storing and moving goods that are a cost to deliver and not a cost to serve.
Consumers are the major spenders in the cost to serve in retail. They spend money in travelling to the store. Consumers spent time there choosing their products and taking them home. E-commerce has got rid of these costs by saving the time of purchasers travelling to the store and saving them inconvenience in transporting the products to their home.
Wal-Mart declared that it was making its forecasted outlook for 2016 and 2017 downward due to disappointing sales and also because the organization wants to make further unplanned investments in its enterprise. The investments are in salaries, training and ecommerce.
Ecommerce is the technology of today and the future. Wal-Mart has failed because it didn’t adopt this disruptive technology. Now goods and services come to customers and not the other way round. Customers prefer shopping online and going through different products online. In today’s modern era, online shops are more profitable and sustainable than the huge retail stores.
What people like about Amazon is the convenience as well as the price. Clearly, Wal-Mart requires investing in e-commerce.
Sources: forbes.com
