Wal-Mart buys social-media startup to power online sales

After failing to bolster its brick-and-mortar business, the company forms a digital retail division.

By InvestorPlace Apr 19, 2011 8:40AM

investorplace logoIt's been a busy few months for Wal-Mart (WMT). The retail giant has said it will improve the nutritional value of its store brands, build smaller stores in urban areas, deliver groceries to inner-city residents and return to its roots by offering lower prices every day.

But if you think Wal-Mart is settling down, think again. According to reports, Wal-Mart has agreed to buy social-media startup Kosmix and form a digital sales division with the hip name @WalmartLabs.

The world’s largest retailer is trying to say loud and clear that it wants to be taken seriously as an online retailer. But amid all these other efforts, is Wal-Mart simply a jack of all retail trades and a master of none? Or can an online push really prop up sliding sales?


First, here are the specifics on the Kosmix buyout. The Silicon Valley company was founded by online retail pioneers Venky Harinarayan and Amand Rajaraman, whose company Junglee was acquired by Amazon (AMZN) in 1998. This gives them quite the digital sales pedigree. Harinarayan and Rajaraman, along with their team, will stay on to run the operation when the deal closes and show Wal-Mart how online retailers are supposed to compete.


It's also worth noting that of all the things Wal-Mart has done recently, this venture could make a difference to its revenue. Sales have been essentially flat last year, thanks largely to growing competition from discount retailers such as Family Dollar (FDO) and others. Wal-Mart has tried gimmicks such as the aforementioned focus on lower prices and grocery delivery to boost brick-and-mortar receipts, but there is fertile ground online.


Consider that in 2010 Wal-Mart saw its online sales drop 1% on Black Friday year over year, even while many other digital retailers saw a significant increase in traffic.


Is there really any wonder why? Since Wal-Mart began peddling its wares online, it has pushed customers to pick up their purchases at the nearest store to get free shipping. It has focused on advertising for its conventional retail SuperCenters. Online sales have been pretty much an afterthought.


Getting more shoppers into stores might have moved the needle on sales before, but nowadays retailers can't ignore the digital element. Many consumers find brick-and-mortar shopping inconvenient and unnecessary, and in the era of high gas prices there can be a fiscal benefit to shopping online instead of trekking around for the perfect bedspread or end table. The whole point of shopping online is to get the best deal, avoid the crowds and avoid the trip -- something Wal-Mart should have embraced long ago.


It will be interesting to see whether Wal-Mart sticks with its site-to-store strategy and whether WalmartLabs' arsenal of social networking and mobile applications can boost the retailer's online sales.

One area the new digital sales division should have first on its agenda is free shipping – especially since many other retailers like L.L. Bean and Amazon offer it. Wal-Mart will have to follow suit to maintain its low-cost appeal online.


Done right and done quickly, this online push could be enough to keep Wal-Mart from losing even more ground in the retail sector. But if it doesn't work, chances are Wal-Mart executives will have another gimmick up their sleeves soon.


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Apr 19, 2011 2:01PM

Wal-Mart needs to stop pushing online only products and go back to stocking the stores with the items people want.  That said, they need to quit buying from China period!  China has a bad reputation for trying to poison people and pets that it amazes me Wal-Mart deals with them.  It isn't the Chinese that shopped their stores and made them what they are today.  The recent changes in Wal-Mart stores limits choices in products so severely they are not the store of choice by many people anymore.


Personally I would never shop there if there were more stores in our area that carried Ice Mountain spring water, which after extensive research proved to me it's the purest drinking water available without adding chemicals, or being ruined by the so-called purification process of nothing more than tainted water.


Americans have made Wal-Mart owners billionaires and they choose to deal with foreigners for their products?  Not the store for Americans!

Apr 19, 2011 1:42PM
Help destroy American by shopping at Wal-mart, the first company to insist that American companies take their manufacturing overseas to China. If you wonder why jobs are being sent aboard, look no further than your local corner Wal-Mart. Americans are stupid, that's why they continue shopping at Wal-Mart.

Apr 19, 2011 11:58AM
Great... just what social media needed! Fake gratitude greeting posted status bar: "TY 4 Shopping @ Wall-mart", "WTF Rollbacks", "LOL  new discounted Chinese comic books"... I just could imagine it's status being posted as "complicated", all it's friends being an overseas exporter, and all videos taken from their ads. Not to mention their underpaid slave worker updating this social media crap.
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