Spending on e-commerce initiatives exceeded what Wal-Mart Stores Inc. planned last year, but the company was pleased with the results.
Online sales grew 22 percent worldwide as the company spent an estimated $1 billion on e-commerce related initiatives. In total, the company generated about $12.2 billion in online sales and it expects those numbers to go up as Wal-Mart seeks what executives describe as the right balance of sales growth and profitability.
Major e-commerce-related milestones for the company included the continued roll out of its global technology platform, Pangaea, and the implementation of dedicated online fulfillment centers.
Wal-Mart has earmarked additional investments of up to $1.5 billion for e-commerce and technology initiatives this year. Sales are projected to increase between 30 and 40 percent over the next three years, the company has said.
"Our key investments started to play a major role in the business," said Neil Ashe, president and chief executive officer for Wal-Mart Global eCommerce. "Most notably, our global technology platform, Pangaea, and our U.S. fulfillment network stood up under the holiday volumes of U.S. customers. At the same time, we saw good sales in markets around the world."
Customer-facing pieces of Pangaea were rolled out in time for Christmas shopping. Ashe said the operating system allowed customers to shop at 30 percent faster browsing speeds and enjoyed a more personalized experience with a faster checkout and additional enhancements aimed at mobile shoppers. Wal-Mart estimated 70 percent of its traffic around Christmas was generated via mobile.
Ashe said the system operated smoothly and "hummed along" as the retailer dealt with record traffic.
Pangaea is designed to allow, among other things, a greatly increased number of items Wal-Mart can sell online. Ashe said Wal-Mart continues to work toward its goal of doubling its available assortment, which would equate to about 10 million items.
"Building and deploying a new platform is one of the most challenging projects for an e-commerce business, particularly at our scale," Ashe said. "Despite all of our testing, with the sheer complexity of a complete platform rebuild, there is nothing like the real thing on the busiest day of the year."
Additional investments were made in Wal-Mart's fulfillment network and should be more visible in the coming months. Ashe again said the company will begin using four additional fulfillment centers in the second quarter of this year. These will serve to complement the company's more than 40 distribution centers and store locations as part of Wal-Mart's fulfillment network.
Wal-Mart does not disclose the number of dedicated e-commerce fulfillment centers it currently operates.
A standard distribution center might house about 50,000 items. Dedicated fulfillment centers for e-commerce could hold in the neighborhood of 500,000 items at a given time, spokesman Ravi Jariwala said. Expenses related to the previously announced e-commerce fulfillment centers are reflected in both fiscal years 2015 and 2016.
Bringing the Texas e-commerce center online allowed the company's fulfillment team in Texas to double the amount of goods it shipped in 2013. Another four centers are expected to be in operation by the second quarter of this year and Ashe said, "while there will be some ramp-up time, they will significantly expand our fulfillment capacity and efficiency in the coming years."
Online grocery sales continue to be a potential area of growth for the company. Huntsville, Ala., and Phoenix became the most recent test markets for Wal-Mart's grocery business, a service that allows customers to order food items online and then pick up at the store or a designated pick-up area.
Bentonville started a pick-up service in October, and both pick-up and delivery options are available in Denver and in San Jose, Calif.
Additional growth online exists outside the U.S. Ashe said international e-commerce will continue, "most notably" in Brazil, China and the United Kingdom.
Wal-Mart International CEO David Cheesewright said the company has automated the process for picking up grocery orders in Japan. "Grab 'n go" lockers are being tested in Canada, and an online offering for business-to-business customers is being rolled out in India. Traffic increased 40 percent during the quarter on Yihaodian, Wal-Mart's e-commerce site in China.
As rapidly as the company is growing its online presence, Wal-Mart CEO Doug McMillon said there is additional room for improvement. The company reported $485.7 billion in revenue for its recently completed fiscal year, meaning e-commerce represents less than 4 percent of sales.
"We're being thoughtful with our investments, ensuring that we have the infrastructure in place to build this business for the long term," McMillon said of the company's online efforts. "I'm excited about the possibilities that are in front of us."
Business on 02/24/2015