Job Hunting

Was CFO Switch at Walmart.com a Sign of Turmoil?

The retailing giant's troubled Web site is in need of a turnaround. Is that why it changed CFOs?
Joseph RadiganMay 7, 2001

Senior management at Walmart.com may have stolen a page from the history books of its parent company, Wal-Mart Stores Inc.

In mid-March, the Web subsidiary promoted Greg Penner, its vice president of business development, giving him the new title of CFO, and then reassigned Sam Dunn from CFO to vice president of inventory management and planning. Dunn spent 13 years at Wal-Mart Stores, rising to the post of vice president and divisional controller, before taking over the CFO’s spot at the Menlo Park, Calif.-based Web site in June 2000.

Penner has been with Walmart.com since last year, and before he joined the retailer’s Web unit, he was a general partner at Peninsula Capital, and invested in software and Internet infrastructure companies. Before that, he worked in strategic planning at Wal-Mart Stores and corporate finance at Goldman, Sachs.

A spokeswoman for Walmart.com could not provide a specific reason for the switch in CFOs apart from saying that it was “driven by the business needs” of the company. She was not aware of any other re- assignments or job shifts among senior management since Walmart.com was created in January 2000 as a joint venture with Accel Partners, a Palo Alto, Calif. venture capital firm.

The spokeswoman also said that neither Dunn nor Penner were available for interviews.

To a certain extent, the job switch is interesting because it bears an eerie resemblance to a management shuffle carried out by Wal-Mart’s legendary founder Sam Walton in the late 1980s, who had two of most senior lieutenants, David Glass and Jack Shewmaker, change jobs.

At the time, the move was explained as an attempt to groom the two executives for different responsibilities. Ultimately, Glass took over as CEO from Walton and led the retailer to one of the most successful growth spurts in its history.

Today, both Glass and Shewmaker are members of the Bentonville, Ark.- based company’s board. Glass is chairman of the executive committee, and Shewmaker has retired from his day-to-day management role.

While the 1980s’ change in Wal-Mart’s executive posts was not sparked by any problems that were apparent to the outside, the recent change in the Web site’s CFO position took place while Wal-Mart is still working feverishly to get its Web strategy in order.

Wal-Mart’s Web site has been troubled almost since its inception, with Wal-Mart taking the unusual step of shutting it down late last fall just as the all important holiday shopping season was reaching its peak. After a six-week shutdown, Walmart.com was relaunched in December.

In February, the Web site laid off 24 people, or 10 percent of its staff. In early March, the financial press picked up on a rumor first circulated by The Sunday Times of London that Wal-Mart Stores was about to hand the management of the troubled site to Amazon.com. But nothing has come of that since.

The Web site’s sales are included in the totals for the parent company, Wal-Mart Stores Inc., but they are not broken out separately. Neither the parent company nor the Web site will say what percentage of Wal- Mart’s $191 billion in sales in the fiscal year that ended in January 2001 came from the Web site. Nor is it clear to what extent the Web site has been a drag on earnings.

But clearly, Walmart.com is far from the pacesetter in E-commerce that its parent company has been in traditional retailing. As long as that’s the case, executives at Wal-Mart are unlikely to be patient.

For example, in the latest survey from Nielsen-NetRatings, Walmart.com didn’t even break into the top 10 E-tail Web sites ranked by the percentage of Web shoppers who have made purchases at individual sites. For the month of March, Amazon.com, which had 15.1 percent market share, ranked first. Southwest.com, with 2 percent, ranked tenth.

Several industry analysts say Wal-Mart, despite its sterling reputation in the traditional brick-and-mortar world, has been stymied in its efforts to transport its expertise to the Web. One of Wal-Mart’s strengths for years has been its inventory management and control, and its logistical expertise with moving goods from suppliers through its warehouses to its stores at minimal cost.

But the company’s strengths haven’t given it an advantage in Web retailing, where catalog merchants and direct mailers, such as Lands’ End and J. Crew, seem to have a leg up on brick-and-mortar retailers because their customer databases are already closely tied to their shipping and order fulfillment systems. In retailing parlance, the direct mailers possess an “order-of-one” fulfillment system.

Wal-Mart derives the overwhelming majority of its revenue from its massive stores built on the scale of aircraft hangars, and lacks a comprehensive database linking customer purchases to individual customers. The retailer has been playing catch up in the Web space, and by all accounts, it seems that the firm is still unable to break free of its troubles.

A spokesman for parent company Wal-Mart Stores Inc. referred all questions about the Web site to Walmart.com. A spokeswoman at the Web site’s Menlo Park, Calif., headquarters told CFO.com, “We are moving toward profitability.”

“Our charge is adding value to the shopping experience and making sure the sum of the parts is greater than the whole,” she added.

But it’s far from clear that the philosophy spelled out by the spokeswoman matches the intense bottom-line focus of the parent company.

“Wal-Mart has no desire to just lose money on the Web site,” says Kevin Noonan, an analyst with technology research firm The Yankee Group.

Yet Wal-Mart’s problems on the Web go beyond mere uncertainty about its business model and a lack of a clear path to profitability and cut right to the core of the strategy that made the retailer so successful in its chain of giant stores.

Noonan says the demographics of the customer base for Wal-Mart’s stores differ from those of most Web sites, and include a high proportion of blue collar and middle income shoppers. That makes it harder for Walmart.com to garner a customer base willing to spend on high-ticket, high-margin items.

Marie Driscoll, a securities analyst with Argus Research in New York, says Wal-Mart’s traditional strength in selling at discount prices is not a strategy that easily translates to the Web.

“The majority of the Internet-only retailers have gone out of business,” she says. “What’s left are the real retailers that have looked at this at another distribution channel.”

The retailers that have used the Web as one distribution channel among several have found that their customers who shop on the Web tend to buy products from several channels and are also more profitable accounts.

“They have 100 million people walking through their stores weekly,” Driscoll says. “Are those the same people who are shopping on the Web? Is there a disconnect in the strategy? You’re not going to buy a lot of the goods on the Internet that you would buy in a Wal-Mart.”

The Walmart.com spokeswoman cited statistics from last year’s holiday season compiled by Nielsen-NetRatings that showed Walmart.com ranking as the sixth busiest site in terms of number of shopping visits. But shopping visits is a metric that Nielsen only uses during the Christmas holidays, according to a spokeswoman for the market research firm, and can’t be compared to the market share of purchasers that Nielsen uses at other times of the year.

By all accounts, Walmart.com has had trouble converting its visitors into customers willing to spend their cash.

Jason Bloomberg, an online retail analyst with International Data Corp., a market research in Framingham, Mass., says Wal-Mart Stores has operated its Web unit at an arms length, in part because management at the parent company has not determined how to run its Web unit at a profit.

The site was first set up in 1996, but then re-launched in January 2000 as part of a joint venture with Accel Partners, a venture capital firm based in Palo Alto, Calif.

Wal-Mart Stores has not revealed much about its investment in its Web venture, although a story that ran in The San Francisco Chronicle when the joint venture was announced in early 2000 said that both partners had contributed between $50 million and $100 million apiece.

The Walmart.com board includes Wal-Mart Stores chairman Rob Walton, and vice chairman and chief operating officer, Lee Scott. James Breyer, managing partner with Accel, also has a board seat.

IDC’s Bloomberg says the arms length relationship between the retail giant and its Web site may be hampering any efforts to integrate the operations of the parent company and the Web site.

But the Walmart.com spokeswoman disputes that assertion.

“We work closely with the buyers from the home office,” she says. “We also have people here who come from Wal-Mart Stores and work in financing, purchasing, and inventory management.”

The real estate team from Wal-Mart Stores also had a hand in selecting Carrollton, Ga., as the site for the Web site’s 640,000 square-foot distribution center. The site is still under construction, although the spokeswoman was not aware of the site’s planned opening date.

The spokeswoman also cited the presence of Walton and Scott on the Web site’s board as a further example of the “open communication between the two sides.”

But open communication or not, Walmart.com’s fate is still very much up in the air. As for whether an alliance with Amazon.com or another E- tail specialist will solve Wal-Mart’s woeful Web presence, IDC’s Bloomberg doesn’t discount it, but he also notes that the two businesses” are very different cultures.”

Unfortunately, cultural differences seem to be the root cause explaining why Wal-Mart can’t translate its retail genius to the Web. Until those differences are resolved, Walmart.com is destined to be an E-tail also ran.