Retail Drive Article

An article by Retail Dive today discusses Wal-Mart’s open call to tech startups for new retail innovations. Read my comments in the article on why it would be a mistake for Wal-Mart to move too far from its brick-and-mortar stronghold. 



Wal-Mart's 2015 IT spending surpasses $10.5b

Dive Brief:

  • Wal-Mart Stores spent more than $10.5 billion on IT in 2015, topping the list of the world's biggest technology spenders, according to IDC research cited by the Wall Street Journal.

  • Financial services firms made up half of the top 10 IT spenders in 2015. Those 10 companies spent a collective $53.7 billion on IT in 2015, up from $45.3 billion the previous year, IDC said. Hardware, software, IT services, telecommunications services and internal IT spending (including salaries and benefits) all fall under the IT expenditures umbrella, IDC explained.

  • Wal-Mart and 2015's other top IT spenders, including banks JPMorgan Chase and Bank of America, were to some extent playing catch-up after dramatic IT spending cuts in the years following the U.S. recession, IDC researchers told the Journal.

Dive Insight:

Wal-Mart is in the midst of a push to find a path to growth—closing underperforming stores, and beefing up training and pay for store employees. Those efforts to provide improved wages, working environments, training and paths for advancement will cost the retailer more than $1 billion, according to its own estimation.

While investors have balked at those costs, it appears that Wal-Mart is spending ten times that much to boost its digital efforts. The retailer has said it plans to spend $2 billion on e-commerce by the end of 2017 and pledged to develop its online grocery business. Wal-Mart is also among the companies looking hardest for top tech talent.

In Q4 this year, which included the holiday season, Wal-Mart (which did not respond to the Journal's requests for comment on the IT spending report) reported just 8% growth in online sales. It’s not quite copacetic to compare Wal-Mart—the largest retailer not just in the U.S., but in the world—to rivals Amazon or Target, which pale in comparison by several measures, but Amazon saw Q4 growth of 22% and Target boosted its online sales by 34% in the same period, helped by its holiday-time free shipping policy. 

“If you look at the U.S. market in 2015, e-commerce grew at 14.6% year on year,” retail futurist Doug Stephens told Retail Dive earlier this year. “If Wal-Mart grew at 8%, they were on the losing end, and somebody else was on the winning end, if you look at it from that very binary standpoint, because if you’re not at least growing with the market, you’re falling behind. It is important because in the long term we have to account for the fact that the consumer lives with this pervasive belief that they can get what they want, whenever they want it, wherever they are. If [Wal-Mart is] not at least keeping pace with the marketplace, they’re only going to look more inconvenient over time.”

But Nick Egelanian, president of retail development consultants SiteWorks International, told Retail Dive that it would be a mistake for Wal-Mart to move too far from its brick-and-mortar stronghold for the sake of e-commerce growth—especially when you consider that even after two decades of market disruption from Amazon (a company that he says is not quite profitable in its own retail endeavors), e-commerce remains at most about 8% of all retail industry sales.

E-commerce logistics are especially tough, Egelanian noted, and that plus online price pressure help keep margins way down.

“Wal-Mart is the biggest retailer in the world, and their system is selling through bricks and mortar,” Egelanian said. “And they’re efficient. We know that Wal-Mart has the most efficient system in the world. We know that they break that product down and put it on the shelves, and they do that very efficiently also, and then they’re done. And selling on the Internet is not efficient. The whole methodology of selling on the Internet is completely foreign to what it’s like selling at a Wal-Mart.”

That could move investor concerns from what the retailer is spending on its stores to what it’s spending on its IT. Nordstrom last week was downgraded by Evercore analysts for straying too far from its own fundamentals like customer service and well-curated upscale merchandise to focus on its off-price and e-commerce operations.

By Daphne Howland | April 25, 2016