Walmart Boosts Online Grocery Delivery To Compete With Amazon

Online grocery shopping and delivery is a booming industry in the United States. In a bid to gain traction in the market, Wal-Mart Stores Inc. (NYSE:WMT) has been aggressively adopting a number of initiatives of late. Per media sources, the retailer is expanding its delivery services to Dallas and Orlando with Uber. Notably, the company has an ongoing partnership with the ride hailing service provider Uber and Lyft for speedy online grocery deliveries. Customers will now be able to order grocery online and the items will be picked up by Walmart employees. Following which the items will be passed on to an Uber driver for delivery. With this, Walmart will now operate online grocery delivery service in six markets, including San Jose, Denver, Tampa and Phoenix.

Walmart’s latest move will offer multiple choices to online grocery shoppers amid increasing competition from Amazon.com Inc. (NASDAQ:AMZN) . The giant retailer also enables customers to order groceries online and collect them from 900 locations. Also, with Easy Reorder on walmart.com, customers can repurchase items by looking into their previous in-store and online purchases records. The company also has a dedicated back-to-school destination on walmart.com which enables customers to shop school supply lists for more than 1 million classrooms across the country.

Walmart’s own mobile payment system called Walmart Pay has also enabled shoppers to pay through its existing smartphone app in all of its 4,500-plus U.S. stores. This system, launched in July 2016, marked another step toward accelerating the company’s online business and making shopping easier and faster.

The company’s free two-day shipping service to U.S. shoppers on a minimum order of $35 and that too without a membership fee has also proved to be a success. This service replaced Walmart's existing two-day shipping program named 'Shipping Pass' that charged shoppers an annual membership fee of $49 and competed strongly with Amazon’s Prime shipping program, which charges customers $99 a year for two-day shipping with additional features like a streaming video service. In April, Walmart introduced a program wherein it offered discounts on online items, only if shoppers picked their orders from a nearby store. The discount given had an added feature to Walmart’s already existing delivery service called Walmart Pickup, which enables customers to place orders online and then pick them up from a store for free. Pickup is currently available at more than 4,600 stores. Interestingly, the initiative has helped the company to save on logistics and thus have a minimal impact on the cost front. Also, this move is expected to drive online traffic further and generate healthy sales growth.

In order to lower its costs of fulfilling online orders, Walmart is also applying for a U.S. patent for a floating warehouse that could make deliveries via drones, per media reports, following the footsteps of Amazon which had applied for a similar patent a year ago.

Not only this, Walmart is trying every means to compete with brick-and-mortar rivals and e-Commerce king Amazon. In this regard, the company continues to make huge investments in e-Commerce initiatives, including acquisitions. The company’s acquisition of four e-Commerce businesses (Bonobos, ShoeBuy, Moosejaw, ModCloth) since the Jet.com acquisition (in September 2016) is in line with the Walmart’s quest to build an impressive digital brand portfolio to take on Amazon. Recently, the company plans to invest in online cosmetics startup Birchbox. If the deal materializes, it will become the fifth e-Commerce acquisition, since the buyout of Jet.com.

Meanwhile, the company is increasing investment in Walmex which hints at its efforts to gain substantial market share in Mexico where Amazon is expanding. Walmart is also aggressively foraying into e-Commerce in China in association with JD.com. In China, Walmart and Sam's Club global flagship stores were launched in association with JD.com in second-quarter fiscal 2018. In addition, more than 25% of Walmart stores in China now offer delivery of orders in less than 1 hour through the JD Daojia delivery platform.

If we look into the last six months’ performance, we note that Wal-Mart’s shares have rallied 11.8%, higher than the industry, which grew 7.0%. The broader Retail-Wholesale sector has increased 8.7% in the last six months.

Our Take

As we can see, this Zacks Rank #3 (Hold) company is making huge investments in e-Commerce activities. While growing e-Commerce business is boosting the company’s sales, higher costs involved in it is pressuring margins. We remain encouraged by the company’s efforts to boost sales and regain investors’ confidence. However, it still faces many deterrents, which are likely to impact earnings in the near term. Declining international sales and currency headwinds are also expected to impact the results negatively.

Interested in Retail? Check these 2 Trending Picks

Some better-ranked stocks in the retail space include The Children’s Place, Inc. (NASDAQ:PLCE) and Canada Goose Holdings Inc. (NYSE:GOOS) . Both the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While The Children’s Place has an expected long-term earnings growth of 9.0%, Canada Goose has an expected earnings growth of 34.1%, for the next three to five years.

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