Walmart (WMT) to Buy Social Networking Firm

It’s been a busy few months for Walmart (NYSE: WMT). The retail giant has said it will improve the nutritional values of its store brands, build smaller Walmart stores in urban areas, deliver groceries to inner-city residents, and return to its roots by offering lower prices everyday.

But if you think Walmart is settling down, think again. According to the reports Walmart has agreed to buy social media startup Kosmix and form a digital sales division with the hip name @WalmartLabs.

The world’s largest retailer is trying to say loud and clear that it wants to be taken seriously as an online retailer. But amid all these other efforts, is Walmart simply a jack of all retail trades and a master of none?

First, here are the specifics on the Kosmix buyout. The Silicon Valley company was founded by online retail pioneers Venky Harinarayan and Amand Rajaraman, whose company Junglee was acquired by Amazon (NASDAQ: AMZN) in 1998. This gives them quite the digital sales pedigree. Harinarayan and Rajaraman, along with their team, will stay on to the run the operation when the deal closes and show Walmart how online retailers are supposed to compete.

It’s also worth noting that of all the things Walmart has done recently, this venture could make a difference to its revenue. Sales have been essentially flat last year, thanks largely to growing competition from discount retailers such as Family Dollar (NYSE: FDO) Dollar Tree (NASDAQ: DLTR), Dollar General (NYSE: DG) and others. Walmart has tried the aforementioned gimmicks such as the aforementioned focus on lower WMT prices or Walmart grocery delivery to boost brick-and-mortar receipts, but there is fertile ground in the online space.

Consider that in 2010, WMT saw it’s online sales drop 1% on Black Friday year-over-year even while many other digital retailers saw a significant increase in traffic.

Is there really any wonder why? Since Walmart (NYSE: WMT) began peddling its wares online it has pushed customers to pick up their purchases at the nearest store to get free shipping. It has focused on advertising for its conventional retail SuperCenters. Online sales have been pretty much an afterthought.

Getting more shoppers into the stores may have moved the needle on sales before, but nowadays retailers can’t ignore the digital element. Many consumers find brick-and-mortar shopping inconvenient and unnecessary, and in the era of high gas prices there can be a fiscal benefit to shopping online instead of trekking around for the perfect bedspread or end table. The whole point of shopping online is to get the best deal, avoid the crowds and avoid the trip – something Walmart should have embraced long ago.

It’ll be interesting to see if Walmart’s sticks with its site-to-store strategy and if WalmartLabs’ arsenal of social networking and mobile applications can boost the retailer’s online sales. One area the new digital sales division should have first on its agenda is free shipping – especially since many other retailers like L.L. Bean and Amazon offer free shipping on purchases. Walmart will have to follow suit to maintain it’s low-cost appeal in the online space.

Done right and done quickly, this online push could be enough to keep Walmart from losing even more ground in the retail sector. But if it doesn’t work, chances are WMT executives will have another gimmick up their sleeve soon.

As of this writing, Cynthia Wilson did not own a position in any of the stocks named here.

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