SKU’d Thoughts 27: Can Walmart afford to close its e-commerce gap between Amazon?

Last week, there were several reports that Walmart’s e-commerce business is on track to lose more than $1 billion this year. This projected loss is not sitting well with the retailer’s executives and they are looking to make some drastic changes to offset this. Walmart has been contemplating divesting one of the three digital fashion brands (Bonobos, ModCloth, and Eloquii — all three are unprofitable) it acquired within the last three years. Additionally, the company plans to put a halt on making any new DTC acquisitions in the foreseeable future.

This got me wondering whether Walmart, a company that is more than half a century old, can stay the course and compete with Amazon. Staying the course would mean continuing to lose profits on e-commerce while experimenting with ways to close its e-commerce gap between Amazon. Outside of profit loss, there is another cost Walmart needs to consider, which is any potential hits to its stock price. At the end of 2018, the retailer reported a 40% year-over-year increase in e-commerce sales and indicated that the growth will continue. Unfortunately, as a recent Recode article noted, “Walmart has not secured the same trust — and long leash — from Wall Street investors that Amazon has.” If the projected e-commerce growth the retailer highlighted at the end of last year is not met, their stock will certainly take a hit.

I believe Walmart can overcome its e-commerce gap with Amazon if it focuses on these three strategies.

1.Double-down on groceries. Online grocery is the fastest e-commerce category in the U.S, with an expected growth of 18.2% to $19.89 billion in 2019. This increase presents an excellent opportunity for Walmart to expand its share within the category. The retailer is on track to offer Grocery Pickup from 3,100 stores and same-day Grocery Delivery from 1,600 stores by year-end.

Recently, Walmart announced InHome Delivery, a service that will deliver groceries to its customer’s fridges and counters. The service is expected to launch this fall across three cities: Kansas City, Missouri; Pittsburgh, Pennsylvania; and Vero Beach, Florida, with the expectation of servicing over 1 million customers. This initiative certainly comes with privacy concerns but Walmart is mitigating them by having its own associates make the deliveries instead of a third-party courier.

2. Fulfill from stores. Today’s customers expect fast delivery of items and often times are unwilling to pay for it; according to NRF, 39% expect two-day shipping to be free. Given this new norm, Walmart has to utilize fulfilling orders from its stores to ensure timely delivery in a cost-efficient manner. The retailer has the advantage of reach. It has more than 4,700 stores in the U.S, all located within 10 miles of 90% of the U.S. population, which allows Walmart to pick and pack orders for faster delivery. Fulfilling from stores also allows Walmart to minimize the logistics required for in-store pick ups (sending from a distribution center to a store of the customer choice), if a customer chooses that option.

3. Continue to incubate. Two years ago, Walmart launched Store №8, a retail technology incubator with the goal of supporting startups that will change the course of retail. As I wrote in SKU’d Thoughts 8, the incubation approach allows big companies to cast a wide net when looking for their industry’s next innovation which is proven to have a higher probability of success than one-off investments in early-stage startups or acquiring proven startups at a premium. Walmart has tried the latter but is now considering selling off startups it has acquired. I believe expanding Walmart’s incubation strategy is most promising because the startups within Store №8 are strategically aligned to address the retailer’s pain points and led by seasoned successful entrepreneurs like Jennifer Fleiss of Rent The Runway. The previously mentioned InHome Delivery is a Store №8 startup.

Walmart can close the e-commerce gap between Amazon by focusing on its strengths. As a retail giant, it can use its size and footprint to improve on customer experience for its online shoppers while leveraging its customer base to trial innovative concepts incubated by proven founders. If the retailer’s e-commerce experiments show early signs of success, Wall Street should afford Walmart the same leeway it gave Amazon during its profit losing years.

Cross posted on Medium