Wal-Mart is coming after Amazon with talent from Silicon Valley and a billion-dollar war chest. But that may not guarantee that the retail giant can do more than eat Amazon’s dust.
Earlier this month, mighty Wal-Mart stunned many people by announcing the closing of 269 stores, including 154 in the United States.
But the more significant news was the company consolidating the store-focused tech unit at its headquarters in Bentonville, Ark., with its fast-growing @WalMartLabs in Silicon Valley into one division, Wal-Mart Technology.
Whatever the charms of Bentonville, Ark., they are not conducive to grabbing the most talented tech workers in the world.
Wal-Mart is in trouble for a number of reasons. The archetypal Wal-Mart shoppers, blue-collar and service workers living in suburban, exurban and rural areas, are not doing well. They have seen the worst of stagnant wages, falling household incomes and offshored jobs. Much of this has been driven by Wal-Mart’s widely imitated business model.
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It is also facing tougher competition from brick-and-mortar retailers, notably Issaquah-based Costco.
But the real danger is Amazon.
Although Wal-Mart has invested $1.1 billion in e-commerce and has the third-largest online-retail site, it is trailing the Seattle giant. Its e-commerce growth is slower. Wal-Mart stock fell during most of last year while Amazon’s hit stratospheric new highs before pausing in the recent market turmoil.
On the surface, it looks as if Wal-Mart is finally preparing to give Amazon its biggest test yet.
With nearly $7 billion in cash on hand, $484 billion in annual revenue, 2.2 million full-time employees and a history of not only destroying Main Street shops but contributed heavily to the demise of such big names as Kmart and Sears, Wal-Mart is impressive.
Nor is its board a bunch of good ol’ boys from Sam Walton’s days. It includes Marissa Mayer, chief executive of Yahoo, and Kevin Systrom, CEO and co-founder of Instagram.
The company has reportedly committed 8,000 employees in Silicon Valley. According to Forbes, Wal-Mart has recently become one of the top companies posting jobs for software developers.
Yet the contest may not be as formidable as it appears.
For one thing, Mayer is struggling at her own company, and although Instagram claims 100 million active users, the photo-sharing and social-networking company has yet to face the reality of an initial public offering. These are not titans who can inform the company about how to take down Jeff Bezos.
More substantially, Amazon is the largest e-commerce site and still growing fast. It’s telling that Wal-Mart’s pilot ShippingPass seeks to mimic the success of Amazon Prime. Copying and following won’t bring success against such an innovation-driven competitor as Amazon.
From robots and drones to assembling its own air force, Amazon is leaping ahead while Wal-Mart is trying to become Amazon circa 2005.
Also, Wall Street expects Wal-Mart to continue posting strong profits. Amazon lets profits loose only rarely, otherwise investing in its powerful infrastructure. Investors love Amazon, not Wal-Mart.
In addition, the average Wal-Mart shopper may be less wired and tech savvy than those who patronize Amazon.
Wal-Mart’s most daunting challenge is that it is a retailer in its bones. Amazon is now one of the five most dominant technology companies in the world.
That gives it incredible talent to leverage in e-commerce. But the Seattle company is so much more.
Through Amazon Web Services (AWS), it provides information-technology services to a huge universe of companies, from startups to outfits such as Netflix. When you stream content on Netflix, it’s running on Amazon’s tubes.
AWS is an increasingly important player in government contracts for cloud computing, too. Among its clients are the Defense Department and the Central Intelligence Agency. Up to 70 percent of worldwide Internet traffic travels through Northern Virginia, most of it reportedly on AWS’ servers.
Not for nothing did Jeff Bezos purchase The Washington Post, the most influential media outlet in the nation’s capital.
Of course, all these balls in the air could cause Amazon to take its eyes off e-commerce, but that’s unlikely. Instead, it is a hydra-headed competitor for all comers, including Wal-Mart. None has yet proved to be the mythical Heracles who can slay it.
One thing to watch will be whether Wal-Mart tries to buy its way into market share instead of organic innovation and technological leaps.
The classic example is the old AT&T, which in the 1980s saw a blurry vision of the future and decided it must become a computer company, especially going toe-to-toe with IBM.
In 1990, it succeeded in a nasty hostile takeover of NCR, a well-run computer company in the industry as it existed then. But for all its money, AT&T couldn’t use NCR to become a computer giant. It spun off a mauled and diminished NCR a few years later.
Or Wal-Mart could surprise everyone by taking down Amazon, by being patient, strategic and, as Bezos says, “be willing to be misunderstood.”
But right now it looks as if the misunderstanding is in Wal-Mart’s C-suite and the company that was such a disrupter in the latter 20th century doesn’t know how to navigate the new landscape.
Information in this article, originally published Saturday, Jan. 23, was corrected Jan. 25, 2016. A previous version of this story incorrectly stated Wal-Mart’s technology division changes.