Wal-Mart earnings: What you won't see

The retail giant's technology push won't show up in Tuesday's third-quarter results, but could be a catalyst for the stock.

By TheStreet Staff Nov 14, 2011 3:10PM

the streetBy Jeanine Poggi, TheStreet

 

Wal-Mart's (WMT) U.S. same-store sales will once again be front and center when the discount giant reports third-quarter results on Tuesday. But there's another key element that will be mostly invisible, at least for now, in the results: its investment in technology.

 

Currently, Wal-Mart's e-commerce is severely lacking, representing less than 1% of total sales, according to Citi analyst Deborah Weinswig. But the No. 1 retailer has been pouring money into its new @WalmartLabs division, which has assumed responsibility for the company's growth in e-commerce, mobile shopping and social media.

 

"We believe that the creation of @WalmartLabs and the division's subsequent acquisitions should help drive increased online sales growth as we move into 2012 and beyond," Weinswig wrote in a note.

 

@WalmartLabs, which was launched in April as a product of Wal-Mart's acquisition of Kosmix, has been hard at work in the past six months. Its efforts started to take shape this week, with the company launching two mobile and iPad shopping applications. The new applications utilize budgeting and list tools, camera functionality and coupons to facilitate seamless shopping for users.

 

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"We believe that the creation of its own proprietary app fits Wal-Mart's historical strategy and we expect Wal-Mart to continue to focus on creating products that enhance the shopping experience and blur the lines between its brick-and-mortar store and its online platform," Weinswig noted.

  

On Facebook, @WalmartLabs rolled out a massive marketing effort centered around Black Friday and the holiday season earlier in the month. The company will also unveil Shopycat, an application that uses data from activity and profiles on the social network to provide users (who opt in) with a list of gift suggestions based on their budgets and helps them locate these items online or in stores.

 

The 70-person @WalmartLabs team of engineers and researchers is expanding, with the company opening a software development arm of 100 employees in Bangalore, India. The new venture will develop applications to provide customers with the exact location of a certain item in the company's big-box stores and detailed product comparisons.

 

At the end of the day, Wal-Mart is attempting to build the ultimate retail channel, where offline and online commerce meld into one.

 

"I think the difference between online and offline is going to blur dramatically over the next two to three years," Venky Harinarayan, co-head of @WalmartLabs, told TheStreet in October. "For example, if I look at a product offline I'd like to see the same detailed page I see online. I'd like to know who else likes this product, what are the reviews, the people who bought this product what else did they buy. And what you expect offline, the whole three-dimensional experience, people are going to want to see that online."

 

This investment in technology will also allow Wal-Mart to make better use of its massive amounts of customer data.

 

"We have questions like it's now college football season, when should we start stocking products related to college football? If you can start looking at social media buzz it gives you a good sense of when people in your area are starting to talk about college football and that is usually a good time to start stocking products," Harinarayan said.

 

"It is going to be very important in the future for Wal-Mart to better localize inventory," says Brian Sozzi, retail expert and chief business development officer for Nothing But Gold Productions.

 

To gauge shoppers' response to multi-platform shopping, Walmart.com introduced two pop up stores in California at the beginning of the month that will remain open until the end of the year.

 

These stores, which are 1,000 and 3,000 square feet, carry a select mix of toys and consumer electronics. Shoppers sit down at stations to order and browse additional products from Walmart.com on tablets and laptops.

 

"These stores will allow customers to have one continuous experience and are a way to bring exposure to Walmart.com and see a different offering from the brand," said Lorenzo Lopez, spokesman at Wal-Mart.

 

There are no plans to further roll out these Walmart.com locations, but they will be used as a way to learn what customers want and to see how all of its innovations are meshing together.

 

Thus far, Sozzi says Wal-Mart's technology efforts have showed up in sales to a miniscule degree, but that will change as the company applies what they are learning both in the U.S. and globally.

 

"While 200 million customers already visit Wal-Mart's stores each week, we believe the company will leverage the use of social media and mobile networks to pinpoint individual preferences while the customer is in the store; provide targeted ads that they can redeem while they shop; and improve checkout time and convenience," Weinswig wrote. "We expect these improvements in the shopping experience to drive incremental sales in the future."

 

With Wal-Mart coming off more than two years of declining U.S. same-store sales, these efforts could be just the thing it needs to keep its traffic momentum going. For the company as a whole, the average estimate of analysts polled by Thomson Reuters is for earnings of 98 cents a share in the October-ended period on revenue of $108.1 billion.

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