Last Thursday, Walmart Stores Inc made the announcement that it plans to slow down on new store openings and instead concentrate on its e-commerce business. This shift in strategy comes in part of its acquisition of Jet.com.
In his blog, Walmart CEO & President Doug McMillon said: “We’ve grown Walmart.com to the second largest online retailer by traffic in the U.S. and in just the past six months we’ve expanded from 7 million items to more than 15 million on the site. We’re adding about a million more each month. We’ve built an impressive fulfillment network that uses mega-sized fulfillment centers and our stores to get orders to customers faster. Within a year, we’ve created one of the largest online grocery businesses in the country.”
The international retail behemoth has been increasingly investing in the e-commerce side of its business with the aim of inching closer to online retail giant, Amazon.com.
Walmart – which currently has five warehouses dedicated to online retail – is planning on doubling this number to 10 by end 2016, faster than the eight warehouses industry analysts expected it to build by end 2017.
According to a Reuters report: Walmart has, in the last year, installed new technology such as automated product sorting and improved item tracking that for the first time puts them on par with Amazon’s robot-staffed facilities.
However, despite this, it still lags far behind Amazon, which has a commanding position in e-commerce. According to retail technology firm ChannelAdvisor data (compiled for Reuters) Amazon has 40 warehouses of 1 million+ sq.ft. and plans to open five more by the first quarter of next year.
Also, Amazon’s online sales of $107 billion last year far outstrip Walmart’s $13.7 billion of online sales in the same period.
In 2015, Amazon’s revenue grew by 20 per cent to $107 billion ($99 billion from online sales, the rest from Amazon Web Services) while Walmart’s sales declined by 0.7 per cent to $482 billion.
In the second quarter of fiscal 2017, Walmart’s revenues rose 0.5 per cent to $120.9 billion while Amazon reported sales of $30.40 billion, up 31.1 per cent from the year-ago quarter.
Apart from this, in the US Walmart has been hit hard by competition from e-commerce – especially Amazon – and it has been cutting jobs and announcing store closures consistently over the past year.
E-War Spills Over To India
In India, Walmart plans to partner Flipkart in a bid to out-sell Amazon. Walmart is in advanced discussions to invest as much as $1 billion into Flipkart in exchange for a minority stake in the Bengaluru-based e-commerce company.
A deal with Flipkart could give Walmart greater flexibility to market products to Indian consumers. Tying up with the No 1 e-commerce portal in India will help Walmart tap consumers in an online market which will hit $100 billion a year by 2020, according to Morgan Stanley.
The bid to form an alliance with Flipkart is also being widely seen as a way to take on Amazon, which in June had announced an additional investment of $3 billion in its India arm, taking its total investment in Amazon India to $5 billion.
According to The Wall Street Journal, an alliance with Flipkart could also help Walmart gain access to Big Data on Indian consumers as well as Flipkart’s suppliers and vendors – both a big advantage to the physical retailer.
For Flipkart too, the talks come at an opportune time. The e-commerce behemoth, which is currently at No.1 slot in India, is struggling to maintain its leadership position with Amazon closing the gap fast.
The battle for in India could spill over into the online food space as well, with both Walmart and Amazon keen to explore the business, especially after the Centre allowing e-commerce in food products, provided foods are sourced/processed in India.
In US, Amazon operates Amazon Fresh, which competes directly with Walmart’s core grocery business.
Amazon’s current model in India is e-marketplace, while Walmart operates cash-and-carry stores.