Walmart, Not Amazon, Was the Retail Disruptor in 2018

The incumbent went from defense to offense last year.

Nicholas Rossolillo
Nicholas Rossolillo
Feb 22, 2019 at 6:01AM
Consumer Goods

Walmart Inc (NYSE:WMT) had a monster 2018 holiday shopping season. Though many news outlets fretted over "disappointing" retail sales results, there was no such problem for the king of retail. Comparable sales (which combines foot traffic and average customer ticket size) in the U.S. shot up 4.2% in the final months of 2018, and full-year comps went up 3.6% -- adding up to one of the best runs the big-box store has had in quite some time.

The biggest story surrounding Walmart's surge was e-commerce, a pain point over the last decade and long the domain of Amazon.com, Inc. (NASDAQ:AMZN) and other digital-first stores. That has begun to change as of late, though, as Walmart has begun to reap the benefits of investing in digital sales capabilities and started to figure out how best to incorporate its real estate with its online presence. Looking back on the last 12 months' worth of results, it would appear 2018 will go down as a turning point.

Walmart is back in pole position

Ever since acquiring Jet.com in 2016, Walmart has been on a tear on the digital front. It has dumped billions of dollars into acquisitions -- both at home and abroad -- as well as ample cash into its own website and online ordering capabilities. It's all starting to pay off. Walmart handily bested Amazon on the online store growth battle last year, implying that it actually gained market share in the fastest-growing segment of the retail universe.

YOY E-Commerce Growth

Walmart (NYSE:WMT)

Amazon (NASDAQ:AMZN)

Q1 2018

33%

18%

Q2 2018

40%

14%

Q3 2018

43%

10%

Q4 2018

43%

13%

YOY = year over year. Data source: Walmart and Amazon.

Besides wholly-owned but independently operated online stores like Bonobos, ELOQUII, and Art.com, Walmart has also been expanding its own website's capabilities. There were redesigns of Walmart.com and Jet.com in 2018, and the Walmart site has steadily added millions of new products for online order over the last few years. The company also added free two-day shipping on many items as well, narrowing the gap with what Amazon can do logistically.

Another reason for the win on the digital front has been the rollout of grocery pickup and delivery. At year-end, Walmart said online grocery ordering and pickup scheduling had expanded by 1,000 locations to over 2,100 in the U.S., and grocery delivery was available from 800 stores. Management sees the momentum carrying into the new year, with another 35% in e-commerce growth expected in 2019.

Three young women carrying shopping bags and walking down a street.

Image source: Getty Images.

Don't despise small beginnings

Detractors would point out that Walmart's digital sales are growing so fast because they are still a small portion of its overall business. This is true, as its 43% gain in online sales during the fourth quarter only contributed 1.8% of the total 4.2% comparable sales advance for its U.S. business segment. That implies that most of the $90.5 billion of net sales during the holidays were made at a physical location.

Check out the latest Walmart earnings call transcript.

Nevertheless, a 1.8% comparable sales contribution from digital alone isn't too shabby -- that's over $1.5 billion in extra sales over the same period a year ago. Plus, if Walmart is able to keep its foot on the accelerator like it is forecasting, it won't be too long before it seriously closes the distance with Amazon, which had $39.8 billion in total online sales during the fourth quarter. That's not to mention Amazon's $4.40 billion in physical store sales (most of which come from Whole Foods), a 3% year-over-year decline, contrasted with Walmart's positive traction with its physical stores.

Thus, it looks like after years of getting disrupted, Walmart is now back in control of the retail industry. Amazon's double-digit advance is nothing to balk at, but the reasons for investing in the internet titan have long moved beyond the retail story. For investors looking for the best retail stocks out there, Walmart now looks like a best-in-show candidate.