While Amazon.com (NASDAQ:AMZN) is dominating and taking names in the retail industry, Walmart's (NYSE:WMT) dependence on store traffic means it's not growing sales nearly as fast. The growth is in e-commerce. That's not in Walmart's DNA -- or is it?
Walmart is on pace to generate about $16 billion in e-commerce sales in fiscal 2018 (which ends in January). That's an increase of 40% over last year, which is slightly faster than Amazon's 37% year-over-year growth in sales over the previous year. While the total of Walmart's online sales still pales versus Amazon's $221 billion in trailing 12-month sales, Walmart's e-commerce growth shows that it's not going to roll over before Amazon's onslaught.
The Bentonville, Arkansas, company has made several moves in recent years that reveal a company taking risks, experimenting, and playing offense to remain true to its roots of being aggressive to win over customers. Walmart may never catch Amazon, but Amazon may never knock out Sam Walton's company.
Walmart's secret weapon
Walmart's focus on opening Supercenters all over the country distracted management from the real competition emerging with online competitors 20 years ago. But that distraction might have been a blessing in disguise for Walmart. The company's footprint of 4,761 stores in the U.S. gives it a significant advantage over Amazon in one crucial category where people are starting to shop more online: grocery.
Most people visit a Walmart to buy groceries, which made up 56% of its unit sales last year. The company has nearly 2,100 grocery pickup locations and 700 pickup towers. It has had tremendous success with its grocery pickup service, and management is now using its newfound expertise in this area to begin grocery delivery.
By the end of the year, Walmart expects to cover about 40% of the U.S. population with delivery through about 800 stores. That's a coverage area that Amazon's Whole Foods Market can't match -- the organic grocery store had 465 stores open in North America at the end of 2017.
Thinking beyond the grocery cart
Grocery pickup has been a significant contributor to Walmart's e-commerce growth. But don't think that its e-commerce strategy is just about groceries. Over the last two years, the company has spent $2.8 billion on acquisitions to beef up its e-commerce operations. Walmart has a 10% stake in China's JD.com and recently invested in India's Flipkart. But one of the most significant acquisitions Walmart made was Jet.com, which helped Walmart connect with the high income, urban, millennial shoppers whom it has historically had trouble reaching.
It's not so much the business operations of Jet.com that benefits Walmart (although it has been a successful duo), but the man behind the curtain. Marc Lore founded and was CEO of Jet.com before Walmart's acquisition. Lore has a long record of starting and growing several online businesses. Before starting Jet.com, Lore founded Quidsi, which owned Diapers.com, Soap.com, Wag.com, and other companies. Quidsi was sold to Amazon in 2011 for $550 million. Amazon's mistake was that it didn't bring Lore along.
Walmart didn't make that mistake. Lore is now head of Walmart's U.S. e-commerce operations. Other than overseeing Walmart's impressive growth in e-commerce over the last few years, Lore has brought a forward-thinking, experimental, risk-taking culture to the Arkansas retailer -- an approach that may sound familiar to Amazon shareholders.
Under Lore's influence, Walmart formed Store No. 8 in 2017 -- "the incubation arm of Walmart," as written on its home page. The purpose of Store No. 8 is to make "big bets on transformative ideas that have the potential to fundamentally change how people shop in the future."
One of those bets is Jetblack, a members-only personal shopping service that just launched in Manhattan. Customers order what they want via text messages, and a team of shopping assistants handles the rest. While Store No. 8 is testing and building businesses that can stand alone on their success, the goal is to test new technologies that could significantly transform how customers shop at Walmart.
Store No. 8 is working on other projects that it's not disclosing yet. But in early 2018, Walmart acquired a virtual reality start-up called Spatialand to add to its Store No. 8 portfolio. A Google alum, Bart Stein, is running another project. On Store No. 8's website, it says that "Bart and his team have created some of the most thoughtfully designed and technologically advanced home devices on the market and will bring those past experiences and learnings to Store No. 8."
The changes continue
There's much more Walmart is doing in the digital arena. For example, the company has partnered with Alphabet's Google to personalize shopping, and recently struck a deal with PayPal Holdings to help the underbanked have easier access to cash in a more digitized economy.
The Arkansas retailer is on the move, and investors should take notice.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon and PayPal Holdings. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, JD.com, and PayPal Holdings. The Motley Fool has the following options: short January 2019 $82 calls on PayPal Holdings. The Motley Fool has a disclosure policy.