How Wal-Mart Lost Its Technology Edge

Two decades ago, the world's number-one retailer used IT to reinvent global supply chains. The world caught up and now Web 2.0 technologies are forcing retailers to pay more attention to customers. No longer a leader, Wal-Mart's IT is at a crossroads.

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Dillman, the public face of Wal-Mart's RFID revolution, joined Wal-Mart in 1991 and became CIO in 2002. When she was reassigned, there was speculation that Wal-Mart executives were discouraged with the RFID project's progress. Ford has affirmed Wal-Mart's commitment to RFID, although he has also acknowledged that there's much work to do. No one knows yet if the RFID project will, in time, turn out to be this generation's Retail Link.

At the same time, analysts say, Ford must turn his attention to new solutions that the business requires. The RFID project "distracted them from the need to become more granular in their merchandising assortments," says RSR's Rosenblum. While IT focused its energy on the supply chain, the business desperately needed help with its new product initiatives and customer relationship strategies. "The object of the game is to align IT with the business, and IT was aligned with business of the 1990s," says Rosenblum. "In 2006, Wal-Mart decided that it had to shift its priorities and IT couldn't jump fast enough."

It's a New, Web 2.0 World

Wal-Mart is struggling to build an online presence. It ranks 13th in Web sales volume among retail businesses, according to industry watcher Internet Retailer, even though, according to Web data analysis company Alexa, is the third most-popular retailing website based on number of users (behind and "I know that Wal-Mart is not as proud as they would have liked to have been with online retailing," says former CIO Martin. "The challenge is huge."

One challenge for is similar to what it faces in its stores: a disconnect between what Wal-Mart is selling and what its customers want to buy. If its core, low-income shoppers aren't buying more upscale clothes and home decor products in the store, they're unlikely to buy them online. "I don't think their original shopper is an online shopper," says Rosenblum. That means Wal-Mart has to market online to new customers with higher incomes.

Edwards notes that, to date, "is not a huge business for them." But it should be, she says, because such trends as "clicks leading to bricks" (shoppers researching online and buying in stores) and new forms of customer relations and marketing are Internet based. In fact, a multichannel approach to selling to Wal-Mart's customers could have a huge impact on the bottom line. "Any time you can get a consumer that shops multiple channels with you, that consumer is much more loyal to your brand," Edwards observes. For example, she notes that Nordstrom customers who shop in multiple channels spend four times as much with the upscale retailer as single-channel shoppers. "I would be surprised if the same was not true for Wal-Mart," she says.

Last year, according to an internal Wal-Mart marketing report obtained by corporate critic, GSD&M Advertising, a marketing and media consultancy, urged Wal-Mart to start utilizing online marketing strategies such as blogs to reinforce the values of its brand (such as its no-hassle return policy) and promote its new products (including high-end consumer electronics such as HD TVs).

Wal-Mart seems to have taken GSD&M's advice. With a revamp of the site in late 2006, Wal-Mart introduced several new features, among them the ability for customers to review and rate products.

That's key for Wal-Mart. According to a recent opinion poll conducted by market researcher Vizu and Bazaarvoice, nearly 80 percent of U.S. shoppers consider it important to read customer reviews before making a purchase. A Bazaarvoice spokesperson confirms that Wal-Mart is one of its clients, but says the company is bound not to talk about its relationship. Nevertheless, the fact that Wal-Mart is trying to promote community among its customers suggests executives recognize the need for change.

More evidence can be found in the August debut of Wal-Mart's "Roommate Style Match" group on Facebook, the popular social networking website that caters to 34 million teenagers and college students. Wal-Mart's hope was that college students would talk up and buy back-to-school products via Facebook and Some of the early Facebook comments, however, had less to do with futons and pillow cases than with unionizing Wal-Mart workers and the death of small U.S. businesses. Typically, such comments would put Wal-Mart on the defensive. This time, a company spokesperson told Reuters: "We recognize that we are facilitating a live conversation, and we know that in any conversation, especially one happening online, there will be both supporters and detractors."

Despite the negative feedback from Facebook users, this new attempt to play in the fields of Web 2.0 has so far gone more smoothly than Wal-Mart's summer 2006 foray. Then, tried to emulate MySpace, another social networking site, to engage its teenage customers. Critics bashed Wal-Mart's creation, The Hub, for closely monitoring the site and using "fake kids who talked about the clothes they were buying at Wal-Mart," according to, a corporate intelligence and analysis website. "The G-rated site with limited functionality had all the makings of a politician wearing a backwards baseball cap in a bid to win the youth vote," it wrote. Wal-Mart quietly shut down the site in October, just 10 weeks after launch.

Meanwhile, has gained success with a new online service called Site to Store, which allows customers to order products from and have them shipped to their local Wal-Mart store for free. (Other retailers, including Best Buy and Circuit City, already offer this service.) During the four-month rollout that began in March, more than 500,000 units were shipped via Site to Store, saving customers more than $5 million in shipping fees. More than 50 percent of orders came from customers making their first purchase, according to Wal-Mart. "Customers are clearly responding to the idea of purchasing online items that are not available in our Wal-Mart stores," said Mike Smith,'s senior director of operations, in a press release.

IT's role in facilitating this customer-centric endeavor is critical—especially because has been knocked for customer service. In ForeSee Results' 2006 "Top 40 Online Retail Satisfaction Index," ranked 33rd in terms of overall customer satisfaction among online holiday shoppers, and its overall satisfaction score was unchanged from 2005.

Wal-Mart IT's Customer-Focused Agenda

There's no magic to what CIO Ford must do to help Wal-Mart execute its new merchandising strategies and goals for growth, say analysts. First, IT should move ahead with its nascent plan to adopt best-of-breed retail technologies where these can quickly benefit the business.

For example, Wal-Mart is known for its ability to collect data. Now, analysts say, it's imperative that IT enable merchandisers and buyers to use it to make better decisions.

"We know retailers collect this information and we know that Wal-Mart throws it out on Retail Link," says Rosenblum. "But mashing it up and actually coming out with intelligent merchandising decisions based on that is the next wave."

Retailers are known to prefer homegrown systems, Rosenblum says, and Wal-Mart is no exception—especially given its size. "They were just too big to run a lot of this packaged stuff," she says. Recently, however, the major software vendors, including HP, IBM and Oracle, have developed sturdier applications that could scale up. Earlier this year, Wal-Mart implemented Oracle's retail price optimization application and HP's Neoview data warehousing platform to crunch the data Wal-Mart collects in its 4,000 U.S. stores. (Neither vendor would divulge any details of its respective partnerships.)

The Oracle tool is going to be important, say analysts, if Wal-Mart continues to expand its presence in the higher-end apparel market, where products have shorter lifecycles. The price-optimization application will allow Wal-Mart to understand when to mark down clothes that are not selling. Edwards says Wal-Mart had trouble last year moving some of its more upscale apparel. "Cheaper clothing isn't enough anymore—it needs to be cheaper and stylish," he says. "In that vein, having good systems and data gathering isn't enough. A retailer must be able to not only gather the data but also interpret it and act on it appropriately."

HP's Neoview tool can provide business intelligence data derived from all kinds of customer purchasing information, which in turn can help Wal-Mart stock its stores based on what sells locally, says Rosenblum.

IT can do little about some negative aspects of customer service that have caused analysts to question Wal-Mart's practices: messy stores, curt cashiers and poorly stocked shelves. Judging customer service can be subjective, admits analyst Edwards, but she says Wal-Mart has not kept pace with competitors such as Target and Costco. "Up until very recently, Wal-Mart seemed to believe that low prices were all that mattered," she notes. "A quick walk through the shoe department, for example, would have convinced you that a bomb had gone off, throwing shoes everywhere. Shelves weren't well stocked. The store was dirty, the bathrooms especially. And the checkout lines were legendary—not in a good way."

But IT can help with some retailing basics that, according to Sahir Anand, an analyst at AberdeenGroup, Wal-Mart has had trouble with of late: ensuring that POS systems are continually updated; that price checkers and interactive kiosks are up and running at all times; that checkout experiences are speedy and that associates are ready, willing and able to guide and motivate customers to use all these tools.

"Technology and customer service go hand in hand," Anand says. "Only when in-store customer-service tools are working properly will customers see Wal-Mart as responsive."

Wal-Mart's future success depends upon IT's ability to deliver the applications and systems that the giant needs to compete today—just as it did a decade or two ago. Rosenblum says that although the current IT regime hasn't directly contributed to Wal-Mart's troubles, "it is fair to say they didn't anticipate the shift [in retailing]. And they didn't realize that [retail software] and hardware had matured enough to where it could support them."

Now, more than ever, Wal-Mart has to tap into Sam Walton's legendary gumption, his knack for seeking out partners when he needed expertise he didn't have, and rely on some of those good ol' "computers."

Copyright © 2007 IDG Communications, Inc.

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