Physical retailers have been hurt by Amazon.com (NASDAQ:AMZN), and Wal-Mart (NYSE:WMT) is no exception. Unlike smaller brick-and-mortar stores however, the discount megastore chain has the ability to fight back and the company has done so by heavily investing in e-commerce.
This has paid off as Wal-Mart has seen tremendous growth in online sales, while in-store results have generally been mediocre. In the second quarter, Wal-Mart reported that global e-commerce sales increased approximately 24% with double-digit growth in the United States, United Kingdom, China, and Brazil. Conversely the company reported that U.S. in-store sales were flat while international sales grew 3.1%.
Some of that digital growth likely comes from Walmart.com taking sales from Wal-Mart stores, but if price is the driving force -- and it's certainly a major factor with the chain's customers -- then clearly its biggest rival is Amazon. And while Wal-Mart has the scale and infrastructure to compete with any physical retailer, it needs to ramp up its efforts to take on the online sales leader.
Wal-Mart is doing just that and has made two major moves designed to extend its retail dominance to the Internet.
Wal-Mart is spending more on digital commerce
In the company's recently announced capital expenditure plan, Wal-Mart said it plans to increase its spending on online efforts while scaling back its retail expansion plans. The chain expects to invest between $1.2 billion and $1.5 billion in fiscal year 2016 on e-commerce, up from approximately $1 billion estimated for fiscal 2015. At the same time it will be adding between 26 million and 30 million net retail square feet worldwide next year, a decrease from this year's anticipated 32 million to 34 million square feet, due to a moderation of large format-store growth and accelerated e-commerce investments. Wal-Mart's FY 2016 ends Jan. 31, 2016.
The company plans to focus on creating what CFO Charles Holley called the "endless aisle" in a press release detailing the company's capital expenditure plans.
"Globally, we expect to finish this year with approximately $12.5 billion in e-commerce sales," said Holley. "Looking forward we expect an increase in global e-commerce sales of around 25 percent in fiscal year 2016, and we anticipate growth over the three-year period from fiscal years 2016 through 2018 to average 30 to 40%."
As part of the efforts to scale up its e-commerce business, Wal-Mart plans to open two new large-scale fulfillment centers located in Bethlehem, Pa., and Atlanta. Each one will be about 1.2 million square feet, GeekWire reported. These two join similar facilities in Indiana, Pennsylvania, and Texas that ship online orders for the company.
Amazon has approximately 100 fulfillment centers around the country, according to ChannelAdvisor. Wal-Mart has more -- about 150 -- which primarily serve its stores. Wal-Mart's new large-scale centers are being created specifically to improve fulfillment of online orders.
Walmart.com has a redesigned home page
Before you can worry about shipping an order, you have to actually get it and Wal-Mart has taken steps to make using its website easier. In August the company announced in a blog post from its E-Commerce VP Ben Galbraith that it was going to roll out a completely new look and feel for its site over the next few months:
We've revised the site from the ground up with a simple, bold, and modern design that sings on any form factor, be it a tablet, a laptop, or a big desktop display. We started our new design from the baseline of small tablets, optimizing it for that form factor, and then carefully considered how each area of the site could adapt itself to take advantage of larger screens with different input mechanisms (i.e., fingers versus mice) when available ...
Those changes include improving its recommendation engine -- a feature Amazon is well known for. Wal-Mart is also looking to further integrate its physical stores with its online one, which is something Amazon can't do. Amazon can ship your items by the next day in many cases, but it can't offer you the option to pay an online price but pick up your stuff immediately.
The new Walmart.com is a vast improvement. It functions a lot like Amazon but has bolder colors and perhaps a more inviting feel. If the company can simply keep its own customers from going to Amazon, then it has won a victory of sorts. Very few retailers have the ability to make the deals with suppliers that Wal-Mart can due to its sheer size, and that allows the chain to compete with Amazon on a price basis.
Daniel Kline has no position in any stocks mentioned. He is an Amazon Prime member who rarely shops at Wal-Mart. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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