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Can Walmart Afford to Chase Amazon into An eCommerce Market Share Race?

February 20, 2018

Walmart reported both same store increases and net revenue above the market’s expectations today, but their stock took a 10% hit.  The reason;  e-commerce sales were only up 23% during the fourth quarter against a 50% increase in the previous quarter.  Profit also missed the mark, reportedly due to Walmart’s strategy to directly and aggressively compete with Amazon during the all-important holiday season.

Given the market’s reaction to this miss, one must assume that the future success of Walmart is not dependent on sales growth in the physical stores, but rather its ability to be better at being Amazon than Amazon.  A daunting task for sure.

The results today also begs a more important question, namely is e-commerce destined to be a black hole of unprofitable sales and if so, how healthy is it for Walmart and others to cannibalize their own, profitable, in-store business for the less profitable on-line alternative?

To put this question in a broader context, we should remember that during the first twenty years of operation Amazon maintained the ability to grow its revenues and its stock price, while being mostly unprofitable.

Source: 2017,

Jeff Bezos, Amazon’s founder and CEO, understood the importance of providing a dynamic vision for the investment community, with the assumption that profits would eventually emerge after Amazon became a significant force in retailing.  Given that Amazon’s market cap exceeded that of Walmart in 2015, one could guess that day has arrived.

However, with Walmart’s aggressive reaction to Amazon, the race for on-supremacy is on.  Walmart’s last quarter results is stark evidence that it will be an expensive race with possible collateral damage to other smaller retailers who are looking for their place in the new omni-channel retailing environment.

Source: 2017

So why Amazon is booming, without being pressed for profits, Walmart gets punished when they do the very same thing in their quest to compete?  Walmart in fact, as the chart depicts, has been increasingly profitable during the same twenty years and yet their stock price is a fraction of Amazon’s.

The double standard is clear.  Investors expect Walmart to grow their on-line business in the same profitable fashion as their physical store operations.  Amazon investors are seemingly indifferent to profit performance.

All of this comes back to the point I attempted to make in the title of this writing, that is that while e-commerce is beginning to make good sense for the consumer, it is unclear to me how profitable it will ever be allowed to be as the developing duopoly of Walmart and Amazon are apparently willing to provide the service at a near loss or loss. In addition, will Walmart’s investors continue to punish Walmart for competing with an entity that has the advantage of not having to be profitable to grow?  Most would say the Amazon will eventually have to play by the same rules as their competitors, but you would never be able to predict that by looking at the past twenty years.



The Necessary and Long Overdue Re-invention of ‘Center Store”

Most of us would agree that over the past twenty years the lion’s share of the focus and creativity within the supermarket has occurred on the perimeter of store. This is true for a number of reasons. Retailers have deliberately placed their fresh foods departments on the perimeter to be close to prep rooms and refrigeration. In addition, the majority of the store’s best deals reside on end cap displays on the back and front aisles of the store.

This all made a lot of sense until it was discovered that over time, fewer and fewer shoppers were entering the “center” area of the store and consequently, the categories and items found in this forgotten area were beginning to suffer from the resulting under exposure.


Understandably, for the past decade or more, retailers and their brand partners have frantically worked to devise new incentives to lure the shopper from their current behavior of remaining on the perimeter to venture down the long and arduous aisles of Center Store.

Some of their efforts have paid dividends, but despite new ‘intrusive” signage, fixtures and fixture configurations, Center Store is still very much under siege. While gains in Dairy, Frozen and Salty Snacks are encouraging, the majority of the remaining Center Store categories have seen sharp decreases in unit sales and in some cases as much as three to five percent over the past five years*


Further, the driving forces behind Center Store decline are largely out of the control of bricks and mortar retailers. For example;


  1. Smaller household sizes yield fewer stock-up trips, meaning fewer trips down the center aisles of the store.
  2. New Competition, in the form of smaller specialty stores, sometimes called ‘category killers’ have diluted the sales of supermarket Center Stores over the past decade, with more of this type of competition to come.
  3. Finally, shoppers have found that buying those Center Store items consumed on a regular basis such as baby products, pet food, water and beverages, paper and detergent can be conveniently purchased on-line and scheduled for home delivery.

This downward trend of Center Store performance begs several questions, chief among them is “Can Center Store survive without radical changes?’   

If you believe as many do that the answer is an emphatic “NO”, then the next logical question must focus on what should and what can be done. The true transformation of Center Store should begin with an honest assessment of the controllable factors that are attributing to its diminished shopper relevance.


From the shopper’s view, research and intuition tell us that today’s Center Store presents a number of negative issues;


  • Configuration: Long aisles within Center Store are uninviting to shoppers as they look down the aisle from the perimeter and quickly become visually overwhelmed.
  • Item Count: Once down the aisle, there are too many items crowded into tight category sets that make it difficult to find items. Variety is good, but too much variety suppresses sales.
  • Visual Clutter: Overuse of large signs, shelf tags and other point of sale materials clutter the shopper’s view even more. In an attempt to make things better for the shopper, retailers are providing a busy shopper too much to read and absorb.
  • Size: Many Center Stores simply occupy too much floor space and are counter-efficient, consuming too much of shopper’s precious time in order to find what they are looking for.  ‘Bigger’ has become an albatross, rather than the panacea retailers once regarded it to be.

From the shopper’s perspective the entire physical concept of ‘Center Store” is becoming ‘unnatural’ when compared to their experiences either on-line or in smaller specialty stores.

Most recent remedial solutions for Center Store deal with making ad hoc changes to category variety, new fixtures, additional signs and of late, new technology such as in-aisle digital engagement through mobile devices. Few if any however, deal with seriously re-thinking the entire concept of Center Store.


Re-categorize According to How Shoppers Buy

Any serious improvement to Center Store must involve the mitigating the four aforementioned negative attributes.   A logical first step in that process involves a re-categorization of Center Store, from the contemporary shopper’s perspective.

The adjacent chart depicts four quadrants of Center Store items that reflect current shopper behavior and options.

  • Quadrant 1: Those Top Selling items that are consumed by most of the shoppers for everyday consumption comprise a very important list of categories and items. This group typically includes the retailer’s list of top 300-500 selling items. Sometimes referred to as the ‘Big Head’ these are the items that the contemporary shopper must have easy access to, without searching and wandering thorough the Center Store to find. Top Sellers should be accessible in this quadrant, even if only through secondary display.
  • Quadrant 2: The second category of items is a subset of the first. This group contains the permanent shelf placement of Top Selling items that lend themselves to scheduled consumption. Paper Towels, Bathroom Tissue, Bottled Water, Pet Food, Diapers and others are all conducive to having their in-store inventory and space they occupy reduced as shoppers are incentivized to schedule their delivery at home or for in-store pickup (BOPIS).
  • Quadrant 3: This leaves the slower moving items, which unfortunately comprise the vast majority of Center Store inventory. As opposed to the ‘Big Head’, these items represent the ‘Long Tail’ and their presence in store should be reevaluated. Quadrant 3 contains those Infrequent Selling items that have High Affinity with Top Selling (Immediate Use) items, meaning that these items are often bought with Top Selling (Immediate Use) items.  These sku’s should be stocked in-store, but aggressively merchandised via secondary display with those fast-selling items with which they have affinity.
  • Quadrant 4: This group contains items that most food retailers stock either because brand partners pay them to do so or retailers believe they must carry deep variety in a particular category. In today’s shopper centric environment, these are the items that make viable candidates for removing from the in-store shelves, de-listing those that show little or no movement, but keeping others that have seasonal value or index higher among the retailer’s best shoppers. In order to necessarily reduce item count, many of these slow moving ‘keepers’ would no longer be stocked in the store’s showroom, rather be available via on-line or in-store kiosk purchase only.

Where to Put What

As monumental of an endeavor as the re-categorization of the Center Store will be for bricks and mortar retailers, dealing with the size and configuration of Center Store will even be a larger challenge. Of those leading bricks and mortar food retailers are designing and build smaller formats. Within these smaller stores, the process of re-thinking which items are kept and which is discarded is critical.

The adjacent graphic illustrates the beginning of the re-organization of Center Store. Notice that each of the four Center Store Quadrants are contained within this layout as well as multiple opportunities for shoppers to pre-order in-store for immediate consumption or simply pick up to take home.

What is also note worthy is the placement of Top Selling-Immediate Use items positioned where shoppers can more easily access them coupled with the placement of Top Selling-Scheduled Use items being available closer to the kiosks where they can also be ordered for regular delivery.

As opposed to long aisles with multiple categories, this approach compartmentalizes items according to their relevance to the shopper and how they would likely prioritize placing them into their shopping cart. With this approach there is no ‘racetrack’ around the store’s perimeter, but rather a natural flow from one shopping ‘priority’ area to the next.

Perhaps the most critical aspect of this approach is the tangible merging of Center Store with On-line. While reducing inventory and clutter, the retailer offers the shopper an easy and practical means to access additional items via kiosks for either same trip pick up or delivery to the home or office.


Shopper Logic

Finally, this new configuration of Center Store categories also serves the needs of traditional types of shopping trips, Quick Trip, Fill-In, Stock Up. Contrary to most current supermarket layouts, this approach facilitates a quick trip when one is warranted, but also efficiently accommodates larger trip sizes when shopper’s needs change.

Any approach to keeping Center Store categories viable within the bricks mortar store must be in context to the many options of convenient alternatives now available to shoppers. While very basic, this approach represents leveraging shopper behavior data to re-think and reconfigure a vital part of the supermarket that most would agree is in need of updating and in a way that actually makes sense for the shopper.



* 2015, Nielsen Category Trend Report

Mark Heckman is CEO of Accelerated Merchandising, LLC a shopper research based merchandising agency. His career was highlighted by senior executive marketing and research positions at Marsh Supermarkets, Randalls Tom Thumb, Valassis, and Smith-Kline-Beecham.   At Accelerated Merchandising, LLC he is partnered with Dr. Herb Sorensen, a noted expert on Shopper Behavior Dr. Sorensen’s recent book, Inside the Mind of the Shopper, Second Edition contains the principles of shopping behavior that drive the need for a shopper-centric merchandising approach.  Heckman authored Chapter Two entitled, Transitioning from Passive to Active Retailing.

It’s Time Bricks and Mortar Retailers Begin to Emulate Their On-line Competition

It is not news to anyone associated with retailing, that Amazon and other on-line retailers continue to carve out increasingly large portions of market share traditionally owned by bricks and mortar stores. This phenomenon is driven both by vastly improved technology and a corresponding increase shopper adaptation of the on-line process.

Much of this growth can also be attributed to on-line retailers leveraging the plethora of shopper behavior data that e-commerce sites yield. Accordingly and to their great credit, e-retailers have used this information to create an increasingly efficient, customized, shopper centric on-line experience.

Such has not been the case for physical retail facilities. While some progress can be claimed in terms of improved fixtures and in-store technology, most retailers are still mired in the past as they design, merchandise, and operate their physical stores.

You Can Only Manage What you Can Measure

The vast majority of traditional retailers continue to do a very credible job in tracking what I will refer to as ‘P&L’ metrics, that is those critical numbers that reflect sales, profits, expense control, and return on investment. With these vital numbers driving their merchandising, marketing, and operations, retailers continue to manage their business. Unlike their on-line counterparts, among other critical customer data, traditional retailers do not, on a regular basis track the time spent in-store by the shopper or how shoppers engage (or not) their merchandising efforts.

To put a finer point on this topic, ask any retailer how long shopper’s spend shopping their stores and how long it takes to make a purchase. The on-line retailers will be able to tell you immediately, while their cousins on the bricks and mortar side will mostly likely wonder why you asked the question.



Tracking Shoppers is One of the Critical First Steps of Optimizing Store Layout

A Shopper’s Time is Much More Limited Than The Amount of Money They are Wiling to Spend in Stores.

Millions of data points indicate that shopper’s are gifted with an internal clock that dictates how much time they are willing to spend in-store. Most retailers are either unaware of this or are in some degree of denial that their merchandising and store offerings will entice the shopper to remain in the store past the time they desire to move on.

Retailers are often surprised as to the average trip length times, even in their largest stores. The adjacent chart reflects such measures in a package liquor store with 5,000 sku’s.

The average trip time is just 6.5 minutes, which puts extreme pressure on the retailer to merchandise efficiently to the shopper in such a brief visit.


Shoppers Spend an Incredibly Short Period of Time Even in Some of the Largest Physical Stores

Supermarkets and mass merchants with stores over 100,000 square feet of selling area are faced with the same problem. Fifty to seven-five thousand sku’s are offer to shoppers often spending less than 15 minutes in their stores.

The point remains that even as stores have grown significantly larger, the average trip times for shoppers are on the decline. In addition, the consensus of many recent shopper-tracking studies reveals that shoppers spend more than four times as much time searching in-store than actually engaged in making a purchase.

Measuring the Physical Store’s Shopper Centricity is Not Only Possible, It’s Imperative to Future Success.

Affordable and practical technics now exist to provide retailers all the information they need to measure in-store shopper efficiency;

Traffic counters with clocks provide the time shoppers spend in the store from the moment they enter the store to the time they leave.  The neighboring chart is an example of an observational shopper-tracking audit.

Personal observational technics enable a comprehensive shopper map that includes density of shoppers, their directional flow within the store, the time they spend in each area of the store, as well as their gender, and the direction they are facing.   This information, coupled with compatible transaction logs from the retailer’s point of sale system, yield important diagnostics as to efficacy of the store layout and design and the critical merchandising plan within the physical store.

Enter Category Management

While most retailers manage their business at the category level, their shoppers are most oblivious to this approach. They shop at the item level and in their world, the faster they can find the items they are looking for, the more likely they are to have the time to impulse purchase unplanned items.

Accordingly, it is incumbent upon category-organized retailers to better understand how and where those categories are merchandised in their stores.   The shopper centricity of a category can be defined on two distinct levels.

  • Shopper Exposure: (which percentage of shoppers are actually travel by the category in the store)
  • Purchase Conversion: Once a shopper ventures by a category, at what rate do these customers slow down to browse and actually shop and most importantly, at what rate do shoppers actually put an item in the basket and make a purchase?


Scoring each of a retailer’s critical categories with exposure and conversion rates is vital to truly unleash the potential of category.  

Techniques to measure category level shopper centricity have been in existence for a number of years. What is changed is the cost and the ease of measuring exposure and conversion and the vital importance of actually doing so to remain competitive in the new, challenging world of digital commerce. There is much more on these topics to come in subsequent writings.

In addition, look on for Dr. Herb Sorensen’s new edition of “Inside the Mind of the Shopper” later this summer for expanded thinking on the new mandate to understand the shopper inside the physical store. The contributions of Mark Heckman are found in Chapter 2, Transitioning Retailers from Passive to Active Mode.


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Focus on Five Things…Just Five

Sophisticated marketing plans often neglect to recognize the need for focus and customer recognition. I begin my conversation with many of my clients by asking “What are the five things your customers consistently give your credit for?” In some cases I can get one or two delivery elements, but most struggle with answering that question with confidence and clarity.

The point is that successful businesses establish a “clear identity” with their patrons. If that vision does not exist, there is more than likely a very weak customer connection in place.

So pick five things. It could be a signature item or service or perhaps a customer experience element. Make sure each of these elements is important to your customers, and then circle the wagons around these five things. Sure, it could be four or even three things you want to truly train your guns on, but five elements provides enough variety to cover marketing, operational, merchandising and service dimensions of the business.

Whether its five, four or just three elements, drill them into the corporate culture and insure that” no matter what” they are supported and associates are held accountable for that support. Identify those elements that can differentiate your business, support them, defend them and do not relent…no matter what!!