Special Report

Battle of the Online Classifieds

Can Wal-Mart beat Craigslist and save the local newspaper?

By 6.17.08

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The story of a nimble Internet firm eating the lunch of a lumbering brick-and-mortar chain has become an old standby, but Wal-Mart is hoping to reverse that trend. The big box retailer quietly launched an online classifieds portal last month. The move has prompted speculation that Wal-Mart might be the last, great hope of flagging newspaper classified sections.

In the transition to online markets, large, immobile big box stores are having trouble contending with steep price competition and customer attrition. Many retailers have resorted to old school mergers to stave the bleeding. But Wal-Mart -- the boxiest of the box stores -- is trying to change all that.

Classifieds service Oodle.com puts the retail giant squarely into competition with classifieds giant Craigslist. Like Craigslist, Oodle places free classified ads online. It also aggregates classifieds from other sites such as Craigslist and Kiggigi.

The current setup of Wal-Mart's site is modest, but its local focus has established potential for local venders -- including newspapers -- to build up the portal's value. This possibility prompted Slate's Chadwick Matlin to wonder if the retail giant could save the local newspaper.

Who knows? But the shift in Wal-Mart's approach is notable, and perhaps evidence that it has learned from past mistakes. Like many other big box stores, Wal-Mart has a spotty track record in online ventures. In 2006 the firm quickly shuttered its teen portal "School Your Way," a product-hawking MySpace alternative that missed the point of social networking, only a year after a failed attempt to compete with Netflix and Blockbuster in the mail order video sector.

But Wal-Mart still has one huge advantage: its size. The company's website attracts 26 million visitors a month according to comScore, putting walmart.com's audience far closer to Craigslist's orbit, which attracts 30 million visitors a month, than any newspaper conglomerate could hope for on its own.

Craigslist may be ripe for some healthy competition. When asked about potential competition from someone like Wal-Mart in Seattle earlier this month, Craigslist founder Craig Newmark sounded more like an old lazy stalwart than a cutting-edge innovator.

"Our site is almost 100 percent free, so we just don't think about competition. It's just a distraction," Newmark said.

THOSE WORDS ARE in stark contrast to the philosophy of Wal-Mart CEO Lee Scott. At the annual shareholders' meeting this month, Scott quoted a lesson from the retailer's founder and patron saint Sam Walton: "You can't just keep doing what works one time. Everything around you is always changing. To succeed, stay out in front of that change."

At the meeting, Scott acknowledged that Wal-Mart has been caught behind the times before. Its long standing lack of a public relations department, for instance, has hurt the company's image over the years, by allowing the company's criticisms to go unchallenged with any positive message. After encountering sometimes severe political opposition, Wal-Mart does not want to repeat that mistake.

Michael Bergdahl, a former Wal-Mart executive and business "turnaround" specialist, insists that entrepreneurship is inherent to Wal-Mart's business model: "You have to constantly reinvent yourself."

In the past few years, Wal-Mart has tried to do just that. Plagued by rumors of poor employee treatment, environmental unconcern, and unfair business practices, Wal-Mart invested in a public relations department and has been broadcasting any changes in its business approach while continuing to do what it does best, in offering deeply discounted products to consumers.

Benefiting from increased sales due to the flailing economy, Wal-Mart has plenty of funds to help shed that negative image. Budget focused customers have always been a staple at Wal-Mart, but consumers who might prefer to shop at specialty retailers are grudgingly returning for Wal-Mart's low prices as their funds shrink, leading to a 38 percent increase in Wal-Mart stock from its September low.

At the end of May, the company announced that sales of U.S. stores open at least a year rose 4.4 percent. That's a significant increase at a time when other retailers are struggling to stay in the black. The company has used some of that money to increase its employee health benefits. It has implemented a $4 prescription drug program for generic drugs, made efforts toward reducing its carbon footprint, and, of course, expanded its online strategy.

PUBLIC RELATIONS CONSIDERATIONS aside, Wal-Mart is proving that it's not content to feast on the bones of the flagging economy.

"Wal-Mart is an incredibly technology savvy company," says Phil Harvey, editor-in-chief at Telecom Website Light Reading. "They are going to figure stuff out faster than other big companies. Even if they fail, they'll be better next time."

Wal-Mart has always been an innovator. In 2004, it became the first retailer to require suppliers to use RFID tags to track merchandise. Wal-Mart's dedication to the mostly untested process caused many of its suppliers to balk at the additional cost they would incur, but the tags have saved Wal-Mart millions in restocking fees, enabled the company to track products more easily, and streamlined the purchasing process.

Though the size of large brick-and-mortar companies often hinders their mobility in online ventures, Wal-Mart has the benefit of its massive bottom line to fund its experiments on the Internet. With niche sites like Mediabistro, JournalismJobs, and Cars.com flourishing, it is evident that there's more room in the realm of classifieds than newspaper ad salesmen realized 30 years ago.

Wal-Mart has yet to prove its mettle in the online atmosphere, and its focus on sales is in stark contrast to Craigslist's focus on user experience. But the free access of buyers and sellers at Oodle may signal that Wal-Mart is starting to comprehend this new marketplace. If that's the case, then the last generation of nimble innovators had better stay on their toes.

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