Wal-Mart Is Thinking Like a Start-Up

By Markets Fool.com

After years of operating with the same playbook,Wal-Mart(NYSE: WMT) is starting to think like a disrupter.

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Gone is the company's traditional strategy of opening up hundreds of supercenters a year across the country, paying workers rock bottom wages, and operating on the cheap to ensure the lowest prices around.

When CEO Doug McMillon took the helm in Feburary of 2014, he inherited a company in disarray. Comparable sales were falling asAmazon.com(NASDAQ: AMZN) seemed to be beating the company on price and convenience, and the company had missed an opportunity to build out a viable e-commerce business.

Now, Wal-Mart has dramatically scaled back on new store openings in the U.S.in order to focus on e-commerce and cleaning up stores. It's hiked minimum wages to $10/hour and increased training in order to reduce turnover, develop management, and improve the customer experience. It's pushing new ideas like grocery pick-up, where customers order groceries online and pick them up from a parking lot -- a concept that should expand to nearly 1,000 stores next year.

But the biggest sign that Wal-Mart is starting to think like a start-up is its $3.3 billion acquisition of Jet.com, the e-commerce upstart, and the recent executive overhaul that followed.

Image Source: Wal-Mart.

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Jet.com Founder Marc Lore has taken over Wal-Mart's e-commerce operations, and is rapidly ushering out the old guard.According toThe Wall Street Journal, the departing execs include Fernando Madeiro, Walmart.com head, Diane Mills, senior vice president of global e-commerce human resources, and Brent Beabout, senior vice president of e-commerce supply chain.

When Wal-Mart announced the acquisition in August, it also said Neil Ashe, its CEO of global e-commerce, would be leaving the company.

Rebuilding from scratch

The executive turnover is the latest sign that Wal-Mart is looking to scrap its old e-commerce model and start fresh. At the time of the announcement, Wal-Mart's e-commerce growth had decelerated for eight quarters in a row, indicating the need for a new strategy.Lore is one of the best-regarded brains in e-commerce, and obtaining his services was a major reason for the Jet.com acquisition.

Prior to Jet.com, Lore founded Quidsi, the Diapers.com parent, which was hotly pursued by both Amazon and Wal-Mart. After savagely undercutting Diapers.com on price, Amazon bought the company in 2010 for $545 million. Lore spent two years at Amazon following the acquisition before leaving.

Wal-Mart CEO McMillon has shown in other ways that he knows his e-commerce division must be treated like a start-up in order to succeed. At the company's investor day conference last month, McMillon said he was doing his best to keep Lore away from the retailer's bureaucracy, adding, "If Marc can be Marc within this company, then great things are going to happen."

Among the ideas that attracted Wal-Mart to Jet.com is its "smart basket" technology, which lowers prices as customers add more items to their orders, and also adjusts prices based on options like paying with a debit card or foregoing returns.

It's too early to say how the Jet.com acquisition will play out, but the spirit of a start-up seems to be what Wal-Mart needs to rejuvenate its e-commerce operations. In its second quarter, e-commerce sales growth accelerated for the first time in two year thanks to the popularity of grocery pick-up.

McMillon's turnaround strategy has been slow to take shape and is not expected to deliver profit growth until 2018. But there are already signs that moves like increasing wages are paying off. Wal-Mart's comparable sales reached its highest mark in years at 1.6% in its second-quarter report, and customer satisfaction scores were up as well. The Jet.com acquisition brings a much-needed set of new ideas and technologies that should boost e-commerce over the long-term.

Wal-Mart is set to deliver its third-quarter earnings report on Thursday, Nov. 17. While bottom-line results could again be muted, I'd expect another promising round of comparable sales and e-commerce growth.

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