Is Walmart (WMT) Really Losing The Amazon Battle?

Last week, Wal-Mart Stores, Inc. (NYSE:WMT) suffered its worst day on Wall Street in more than 30 years, with shares plunging 10.2% on a single day after it reported lower-than-expected fourth-quarter results, primarily because of slower e-commerce sales growth.

Naturally, investors are concerned but the company is confident of bouncing back by doubling down on its investments in e-commerce and online grocery sales. Moreover, slower e-commerce sales growth was somewhat expected as this was also the first time that Jet.com sales in the year-ago period was included in e-commerce revenues. Hence, the picture isn’t as gloomy as it looks at first glance.

Why Walmart Slipped Up

The most eye-catching development was Walmart’s e-commerce sales growth in the United States that slowed to 23% in the fourth quarter, marking a sharp decline from 50% in the prior quarter. This might have been viewed as a setback for investors but it’s too early to draw conclusions.

Incidentally, what most people are overlooking is that last year’s results got a big boost because of its acquisition of Jet.com. Moreover, it was expected that growth would slow because Jet.com’s sales in the year-ago period was included in Walmart’s e-commerce revenues for the first time.

That said, Walmart is hopeful of registering 40% growth in online sales this year, which should boost investors’ confidence. Moreover, the panic among investors is not a result of Walmart’s slower e-commerce sales growth but because of increasing competition from Amazon.com, Inc. (NASDAQ:AMZN) , which has in the last few years changed the entire retail ballgame by bridging the gap between traditional and online retail.

How Amazon Has Changed the Retail Game

The biggest move in the brick-and-mortar space was made by Amazon when it acquired Whole Foods for $13.7 billion in 2017. It slashed the prices of a number of products to enhance its online retail sales, which worked in its favor.

The Whole Foods’ acquisition came within a year after Walmart decided to penetrate the e-commerce space with the $3.3 billion acquisition of Jet.com. The acquisition immediately gave Amazon access to Whole Foods’ 450 stores across the United States, thus providing it enough power to compete with brick-and-mortar giants like Walmart, Target (NYSE:TGT) , Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG) . Walmart has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, Amazon recently announced that it will offer free, two-hour delivery from Whole Foods’ stores to its Prime members in four cities — Austin, Dallas, Cincinnati and Virginia Beach.

Amazon certainly has established its dominance in the online retail space but the other players aren’t lagging either. Walmart continues to be the country’s largest grocer and is trying to tap this space by offering customers the option of ordering online and a free pick-up from the store. Target brought online grocery-delivery company Shift to add muscle to it online delivery arm. Interestingly, Walmart’s shares have increased 28.32% in the last year, while that of Target has risen 13.38%. Dollar Tree and Dollar General’s shares have increased 34.25% and 19.85%, respectively, in the last 12 months.

Walmart Fights Back

Besides registering slower-than-expected e-commerce sales, Walmart also acknowledged a few mistakes it made during the fourth quarter that negatively impacted its sales. One of these was an increase in TVs, toys and electronics in its warehouses that eliminated space for basic items during peak holiday sales.

However, it’s not the end of the road for Walmart as it seems on track to boost its online sales. The company has plans of investing extensively in e-commerce this year, which is expected to drive organic sales by 40% in fiscal 2019. Since acquiring Jet.com, Walmart has spruced up its online services and increased the number of available items.

Moreover, it has acquired brands such as Bonobos and ModCloth and intends to revamp its website with a focus on fashion. Also, Walmart recently launched a home shopping vertical on its website with a focus on furniture, accessories and other decorative items. The company is also making huge investments in training its employees.

Beyond Brick and Mortar

One of biggest strategic moves made by the company lately was to do away with “Stores” from its corporate name in order to give an impression to customers that it doesn’t want to restrict itself to a traditional brick and mortar company. Walmarts’ stores, however, give it an edge over Amazon, its biggest competitor. Keeping that in mind, the company is planning to double the locations offering grocery delivery, which is likely to boost sales.

The biggest advantage for Walmart is that it is a lot larger than Amazon in terms of revenues. The company’s 2017 sales crossed $500 billion, making it three times bigger than Amazon. Moreover, while Walmart’s stock nosedived last week, it traded at an all-time high with a 12-month gain of more than 60% in late January just before the market entered correction territory.

Not the End of the Road

The sharp decline in the company’s shares might have made investors skeptical but Walmart has a lot of things going in its favor, with the Republican tax cut likely to help retailers save an astounding $175 billion, per the National Retail Federation (NRA). Moreover, the company is confident of registering 40% growth in online sales in fiscal 2019 with huge investments in e-commerce to include a re-launch of its website along with other initiatives.

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