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Walmart (WMT) Advances E-commerce Game With Next-Day Delivery

Zacks Equity Research

Walmart Inc. WMT is clearly going all the way with its efforts to step up its game against e-commerce king Amazon AMZN. Evidently, the big-box retailer is on track to roll out next-day delivery on certain popular products for free, as reported by several media sources. The move follows Amazon’s recently announced plans to switch from two-day to one-day delivery for its prime customers.

Walmart will begin next-day deliveries on minimum orders of $35 immediately in Phoenix and Las Vegas, with plans to expand the program to South California soon. Further, sources stated that the company intends to extend the service to nearly 75% of the United States by the end of this year. In this regard, the supermarket giant is including a new NextDay section on its website.

On delving deeper, we note that Walmart is procuring inventories from the nearest fulfillment centers to facilitate easy next-day deliveries. This strategy also entails lower shipping costs, which is likely to aid margins. Well, the company has been grappling with soft margins owing to costs associated with investments in e-commerce and technological advancements, mix impact from growing e-commerce operations, and a compelling pricing strategy.

Next-Day Delivery Fuels E-Commerce Operations

Without a doubt, Walmart is trying every means to evolve with the changing consumer environment and compete with Amazon. In this regard, the company has undertaken various initiatives like buyouts, alliances, and improved delivery and payment systems. Walmart’s buyouts of ShoeBuy, Moosejaw, Bonobos, ModCloth and Jet.com, and deals with Rakuten, and Lord and Taylor underscore its intention to build an impressive digital brand portfolio. Also, buyout of 77% stake in Flipkart is likely to bolster the company’s e-commerce sales in the long run, though the deal is expected to hurt the bottom line in fiscal 2020.

Additionally, partnership with Microsoft MSFT is likely to strengthen Walmart’s digital capabilities. This apart, the company is making aggressive efforts to expand in the booming online grocery space, which has long been a strong contributor to its e-commerce sales. To this end, the company’s contract with Point Pickup, Skipcart, AxleHire and Roadie, deal with Postmates, and buyout of Parcel are noteworthy. Further, the Walmart Pickup program enables customers to place orders online and pick them up at a store for free. Walmart also partnered with ride hailing services, Uber UBER and Lyft, for speedy grocery deliveries, and tested same-day delivery with Deliv.

Backed by such endeavors, U.S. e-commerce sales surged 43% (in line with the growth recorded in the third quarter) in the fourth quarter of fiscal 2019. E-commerce sales improved on the back of enhanced online assortments and increased grocery pickups. Management is encouraged about achieving 35% U.S. e-commerce sales growth in fiscal 2020.

We expect Walmart’s constant endeavors to stay afloat amid the competitive frenzy and enhance performance to further boost investors’ sentiments. Markedly, this Zacks Rank #2 (Buy) stock has rallied 19.1% in the past year, outpacing the industry’s growth of almost 17%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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