When retail giant Walmart (WMT +0.95%) released third-quarter earnings Thursday, competing e-commerce companies and discount retailers like Amazon (AMZN 0.87%) and Target (TGT +1.45%) were watching closely. While all metrics are important, specific attention surely was paid to Walmart's performance and growth in e-commerce and digital sales.
According to the U. S. Census Bureau, e-commerce, as a percentage of total retail sales, has been on a steady rise. In the second quarter of 2009, total U.S. e-commerce sales were estimated at $35 billion and represented 4% of total sales. A decade later, total U.S. e-commerce Q2 sales were estimated at $146.2 billion and represented 10.7% of total sales. Additionally, this year's Q2 growth represents a 13.3% change year over year.
Summed up and simplified, e-commerce continues to show that it continues to grow in importance to the overall retail sector, which means investors need to pay close attention to how successful traditional brick-and-mortar retailers are able to adapt and compete with pure e-commerce companies like Amazon. Let's look at how Walmart performed in Q3.
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Walmart reports strong e-commerce numbers
Walmart reported a 41% increase in e-commerce sales year over year, the strongest growth in a quarter so far this year. The company also saw e-commerce growth in other areas, including a 32% increase in e-commerce sales at wholesale Sam's Club locations, 65% growth in Mexico, triple-digit growth in Walmart China, and double-digit growth in Asda, a Walmart-owned subsidiary specializing in grocery delivery in Great Britain.
Statements from Walmart President and CEO Doug McMillon that accompanied the earnings release credit grocery delivery and same-day pickup services as a big driver in the growth and continued success of e-commerce.
Highlights include:
- Q3 ended with 3,000 grocery pickup locations and 1,400 same-day delivery locations, which are part of a new program called Delivery Unlimited.
- The company launched InHome Delivery in three U.S. Markets -- Kansas City, Pittsburgh, and Vero Beach, Florida -- a program where groceries are not just delivered to your home but put right into your refrigerator.
- Walmart launched grocery pickup and delivery throughout Canada through strategic partnerships with Foodora and Instacart.
How will Amazon and Target react?
Both Amazon and Target clearly understand the importance of gaining as much of the e-commerce pie as possible, especially with grocery and same-day convenience shopping. With Walmart clocking in impressive numbers and launching several new programs and initiatives this quarter, expect an all-out war from the competition.
Target has already seen impressive success in digital sales, with Q2 comparable digital sales increasing by 34%, to 7.3% of total sales. When Target reports Q3 earnings next week, expect Walmart to be watching intently. Amazon launched AmazonFresh grocery delivery in beta testing earlier this year and has continued to expand and invest in the growth of the project.
Investors need to monitor several key factors. First, monitor the obvious -- market share. Customers are still learning to adapt to digital and convenience shopping options, and there's a lot of opportunity for growth. Second, monitor how each company manages its supply chain and the costs of expedited and convenient shipping. Convenience has a cost.
And third, Walmart's and Target's physical retail locations are an important part of supply chain and fulfillment when it comes to their e-commerce efforts. If the companies start to have issues with profitability or expenses there, it will require decisive -- and quick -- corrective actions to stay competitive.
All in all, this week was a win for Walmart. But don't expect the competitors to sit idly on the sidelines cheering.
