Satisfaction Index Directs Walmart Merrily on Its Way to E-Commerce Dominance

Last Updated Aug 26, 2010 2:38 PM EDT

Online sales, a bright spot for retailers throughout the recession, are only going to get better -- and, in a Walmart-related way, that's a scary prospect.

In the latest version of ForeSee Results Online Retail Satisfaction Index, Walmart (WMT) broke into what could be called the Elite 80. That's the group of e-commerce retailers that earn a satisfaction rating of 80 and above in the 100 point index.

ForeSee contends that consumers who rate a given online retailer at 80 or higher are 73 percent more likely to purchase online than average, 67 percent more likely to buy from the e-tailer the next time they're on line for a similar product and 47 percent more likely to purchase from the retailer off line. Indeed, a point increase in satisfaction can mean almost $90 million in sales.
Last year, Walmart vowed to become the dominant retail power in e-commerce and this year has made online operations a global priority, organizing a new worldwide division to boost its effectiveness as an international purchasing tool and selling vehicle. As late as 2005, Walmart scored a 74 on the ForeSee index, a point below the average satisfaction rating for that year. In spring 2010, with its 80, the retailer has scored two points above average.

Current consumer response to online retailing makes this an opportune time for an e-commerce push. This spring's average satisfaction rating of 78 for the top 100 e-commerce retailers was the highest score ForeSee has thus far recorded.

Keep in mind that Walmart plans to slow store growth because it's suffering increasing cannibalization, which happens when a company opens a new store close enough to an existing one to bleed off sales. The more of the United States Walmart has occupied, the fewer new territories it can explore. In report to shareholders, Mike Duke, Walmart's CEO, recently said the company is developing new small store formats that will expand into untapped niches, particularly in more urban markets. However, Walmart also has pointed to e-commerce as an important growth opportunity.

Even though it accounts for only five percent of total retail sales, e-commerce is attractive because expansion requires minimal investment. Whatever cannibalization occurs is spread across the entire chain, so it doesn't ruin the profitability of any individual store.

Plus, online activity spurs in-store sales, as many consumers continue to shop online, then buy the old fashioned way. By providing free to-store delivery, Walmart even uses the Web to encourage additional store visits, which can result in purchases beyond what's being picked up. The folks from, which helps consumers browse stores for later purchase on site, points out that many retail categories, food and clothing among them, generate less then one percent of total sales online. Walmart sells food and clothes in abundance. So, it can coax consumers picking up one kind of item to shop for another they might not order online.

Yet, even as Walmart advances its Internet agenda, the competition it faces is making customer satisfaction strides as well. In the Spring 2010 index, 28 online retailers met or exceeded an 80 rating versus five in spring 2009.

The study's top three dotcoms, Netflix (NFLX), Amazon (AMZN) and Avon (AVP), all advanced by two percentage points to 87, 86 and 83 respectively. But the grand leaper of the Top 10 was the Apple Store, up eight points to a tie for third at 83.

Walmart has some work to do if it is going to seriously challenge Amazon, now the second highest satisfaction performance rated e-tailer. Walmart also makes the Top 10 sales list, as composed by Internet Retailer, with sales of $3.5 billion. But Amazon is significantly, you might even say geometrically, ahead with sales of $24.5 billion. Even Number Two Staples (SPLS), at $9.5 billion, has less than half Amazon's e-commerce sales.

[More on the ForeSee Online Satisfaction Index study in an upcoming post.]