Wal-Mart's e-commerce sales to hit $12.5 billion as investment continues

Wal-Mart's digital reinvention revolves around leveraging the retailer's unique assets instead of chasing Amazon.

Wal-Mart's global e-commerce sales are expected to be about $12.5 billion for 2014, up 25 percent from a year ago. However, Wal-Mart will also lose about $800 million this year as it adds online fulfilment centers, invests in systems and continues to hire talent via acquisitions.

The company and e-commerce chief Neil Ashe walked through the e-commerce plans on Wal-Mart's analyst day on Wednesday. The general theme is that Wal-Mart is focused on building a global technology platform that can leverage the retailer's supply chain, distribution and merchandising expertise.

For 2014, Wal-Mart expects to spend about $1 billion on e-commerce, up from its target of $800 million and well ahead of the $400 million spent in 2013. Wal-Mart is expecting to invest another $1.2 billion to $1.5 billion in 2015 on e-commerce.

Moving the overall sales needle with e-commerce is a daunting task. Wal-Mart for the fiscal year ending Jan. 30, 2014 is expected to deliver sales of $476.3 billion, up 1.5 percent from fiscal 2013. Wal-Mart's revenue per quarter handily eclipses Amazon's annual sales. 

According to Ashe, the goal is give Wal-Mart an omnichannel presence that can link physical and virtual experiences for customers. That goal isn't unique, but Wal-Mart is investing heavily and knows its identity. In other words, Wal-Mart's e-commerce operation isn't looking to do Amazon better than Amazon. Instead, Wal-Mart is looking to take e-commerce, leverage its existing strengths and ultimately land new customers as well as drive wallet share among existing ones.

"We know who we are and what matters. We're going to deliver Wal-Mart your way," said Ashe at the analyst powwow. "If you shop with us in multiple formats, you'll shop with us more than anyone else."

Ashe highlighted multiple data points showing that mobile apps increase store visits, Savings Catcher, an app that scans receipts to ensure you got the best price possible, and integration points between shipping and physical store pickups.

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Other takeaways on the e-commerce front:

  • Wal-Mart is building a next-gen supply chain that features shared distribution centers for physical and online, dedicated facilities and ship from store options.
  • The retailer is on a hiring binge via acquisitions such as Adchemy and Tasty Labs as well as fielding more than 34,000 applicants for tech roles. Less than 2 percent of applications were extended offers.
  • Wal-Mart said it continues to develop its Pangaea, e-commerce operating system that revolves around analyzing data from customers, operators and merchants.

As for the big picture, Wal-Mart is expecting growth to come from e-commerce for the foreseeable future and the mission is to make sure technology doesn't cannibalize store sales and adds to them.

Nevertheless, Wal-Mart's capital spending on e-commerce is massive, but still just a slice of the overall pie. This chart from the Telsey Group highlights the cap-ex pie and where e-commerce fits in. The bottom line is that Wal-Mart's e-commerce spending will ding operating earnings for the next few years, but the investment could pay off for years to come. 

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