Wal-Mart's Multiformat Gamble

Pickup With Fuel isn’t just about going small or digital—it’s a sign of our omnichannel future

A wise man once said, “Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”

That man, Jeff Bezos, founder, chairman and CEO of Amazon, has a name synonymous with retail disruption. He poses his company’s “outsized returns”—$107 billion in sales, according to Forbes—as the result of betting against conventional wisdom.

Most recently, this includes the idea that an e-commerce retailer doesn’t translate into brick and mortar.

He countered that claim with Amazon Go, an 1,800-square-foot c-store that offers food, grocery and the ability to pay without a checkout line, currently in test in Seattle [CSP—Feb.’17, p. 28].

For traditional brick-and-mortar retailers, news of Amazon Go—and rumors of 2,000 other small-format stores in the works—must feel reminiscent of that famous scene from the horror film “The Ring,” when the malevolent long-haired girl climbs out of the TV. Not only is Amazon defining the shopping experience online—and resetting customers’ expectations along the way—but now it’s attempting to do so on the street. And with each move, it is driving to become the truest convenience retailer, meeting consumers wherever they want to buy and with the fastest transaction.

“There have been retailers in the past that have tried to steer consumers into certain solutions that were easier and more profitable to execute,” says Carol Spieckerman, president of Spieckerman Retail, a Bentonville, Ark.-based retail consultancy.

Amazon has blown this up by deferring to the consumer. “Now [retailers are] realizing if they don’t offer convenient choices, they can be left behind or shoppers will go elsewhere.”

This includes the world’s largest retailer, Wal-Mart Stores Corp. With $482.1 billion in worldwide sales, the Bentonville, Ark.-based chain of 5,000 U.S. stores dwarfs Amazon in sheer size. But with only 2.8% share of e-commerce sales, according to eMarketer, Wal-Mart is a very distant second to Amazon online, which commands more than 74% share.

And increasingly, when asked to choose where to shop, consumers are picking online—and they’re picking Amazon.

“[Amazon’s] taking trips out of shoppers’ portfolios,” says Laura Kennedy, director of retail insights for Boston-based Kantar Retail. Half of Amazon Prime members shop with Amazon before another retailer, according to Kantar Retail. And based on the firm’s penetration data, Amazon is about to pass Wal-Mart as the most shopped retailer in the United States.

It’s forcing Wal-Mart to question its differentiation, which can no longer be just about everyday low price. “What is Wal-Mart’s unique role with shoppers?” Kennedy says.

Of course, Wal-Mart did not get to be the largest retailer in the world by playing it safe. To broaden its online presence, it has been acquiring e-commerce players such as Jet.com and Shoebuy.com. And to make shopping more convenient, Wal-Mart has been expanding its buy online, pick up in-store (BOPIS) efforts, most recently with Wal-Mart Pickup With Fuel, a combination c-store, gas station and click-and-collect location, currently in test.

As these two giants duke it out, other retailers need to be ready to learn, and to ride the wave.

“Wal-Mart is in a very dynamic mode, and they’re making some big, big bets,” says Spieckerman. “When Wal-Mart does that, it always creates disruption.”

Continued: Meat the Fearless Tester