The retailer had an excellent 2019 in terms of e-commerce, as its sales grew by 41% in the third quarter of the year, thus helping the board remain optimistic regarding the overall online sales, expected to surpass 35%.
With the report for the fourth quarter expected to be released this Tuesday, investors and analysts are looking for ways to turn Walmart’s e-commerce sales growth into a profitable business!
Competing with giants
The Arkansas-based company’s strategy currently relies on spending significant amounts of money, in order to compete against Amazon. And it does look like a good approach, as the results started appearing, especially when it comes to Walmart’s grocery business.
“They’ve put themselves in a great position to fight Amazon in the online world, but now they need to show less of a profitability drag from that initiative,” admits Michael Baker, a senior retail analyst for Nomura Instinet.
However, it wasn’t easy for Walmart to reach this point, as its path towards this e-commerce growth hasn’t been straightforward. Back in 2016, it acquired Jet.com for $3.3 billion, trying to scale up online sales. Also, Jet.com co-founder Marc Lore also joined the team, leading the U.S. e-commerce division.
The core of the online sales growth has been online grocery orders, as the retailer constantly promoted the possibility to make your groceries online and pick-up your order in stores. Also, they have been testing new ways of building loyalty, including a program similar to Amazon Prime, for unlimited groceries, as well as a service that delivers groceries directly to customers’ refrigerators.
And it was a real success!
Throughout 2019, Walmart established over 3,000 grocery pickup locations and more than 1,400 same-day groceries at the end of Q3. As for the direct refrigerator deliveries, it reached cities like Pittsburgh, Kansas City or Vero Beach, Florida.
The flops were there as well
As expected, not every attempt was successful. As it was trying to expand in e-commerce, Walmart also had some notable flops.
For example, after buying some important e-commerce brands, including Bonobos, ModCloth, as well as Eloquii. Still, Bonobos experienced layoffs in 2019, while founder Andy Dunn announced his exit from Walmart. Modcloth was eventually sold in late 2019, while Eloquii remains unprofitable.
Finally, it’s also worth mentioning that Walmart announced that another one of their e-commerce experiments, Jetblack, will also be shut down soon. A membership-based service, introduced two years ago, targeting busy families from NYC, allowing them to text an order and get anything, except fresh foods, delivered directly to their home.
Analysts are still skeptical
There are mixed feelings regarding Walmart’s e-commerce success in 2020. Morgan Stanley’s Simeon Gutman believes that the retailer could lose up to $2.1 billion on an operating profit basis this year, while Michael Baker of Nomura Instinet claims that the losses will actually shrink in 2020.
However, one thing is sure: Walmart is now aware of the fundamentals of e-commerce and after building out its online order and pick up business at most stores in the United States, it has less upfront investment. And this could mean a lot this year.