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Walmart Forms Plan to Battle Amazon

Walmart wants investors to rethink the company’s business as it outlined plans to grow online sales and how it will battle Amazon for more share.

 “I want to challenge your thinking about Walmart,” said Walmart CEO Doug McMillon. “We are getting to reimagine retail and our business…expect us to test a lot and fail a lot.”

Grocery sales make up 56% of Walmart’s revenue. McMillon emphasized how Walmart has an advantage over Amazon in this area. By the end of the year, over 2,000 U.S. stores will offer a grocery pickup service, with 800 offering grocery delivery.

Barclays expects Walmart will be able to offer exceptional service and capabilities relative to any other U.S. brick-and-mortar retailer, even Amazon. Walmart’s biggest advantage over retailers is their same day-delivery. The company plans to expand same-day delivery from 100 markets at the end of fiscal 2019 to 200 by the end of fiscal 2020.

BMO believes the continued rollout of grocery pickup and grocery delivery locations has been a meaningful contributor to Walmart’s e-commerce outlook and will continue to support the expected  35% U.S. e-commerce growth in 2020.

Walmart implemented zero-based budgeting and is currently working on or evaluating more than 300 initiatives. The “tech-enabled” efforts will reportedly result in labor saving, allowing the company to implement labor elsewhere in the store or lower it in total to offset contracting gross margins, according to Barclays. The initiatives include FAST unloaders, shelf-scanning robots, electronic shelf edge labels, autonomous floor cleaners, and apps/bots.

Additionally, the company is testing efforts for improving the efficiency of its grocery pickup. Two tests were outlined including a robot picker for grocery pickup with Alphabot and Auto-dispense for grocery pickup.

The company is expected to add apparel and pharmacy items to online grocery pickup over time, supporting the mix outlook.

Walmart is light years ahead of every conventional food retailer domestically and it should be well positioned to continue gaining share in this $800 billion-$1 trillion market, Barclays stated. If Walmart can keep gaining share in food, these frequent low margin food purchases will translate into higher margin discretionary sales.

More natural and organic products are being driven by existing and new customers and merchants are taking risks on higher priced items. Walmart has indicated willingness for price increases, though its merchants are always monitoring market pricing to be the low price leader. As the company navigates changes due to tariffs, Walmart will work to lessen the impact on its customers.

Walmart posted its best quarterly U.S. sales growth in a decade this August and expects a 35% growth rate for its online business in the year ending in January 2020, along with a 40% growth in the current year.

It is anticipated the e-commerce business will post a slightly greater operating loss next year, CFO Brett Briggs said.

In an effort to boost online traffic, the company underwent a web redesign, started offering more grocery options, and acquired fashion brands to appeal to Millennial shoppers.

A key part of Walmart growing its e-commerce variety is retail partnerships and acquisitions. These acquisitions can provide the company with merchandise expertise, content, and relationships with businesses in areas that it needs improvement.

Walmart has shown considerable flexibility in its efforts, noted Barclays, with companies like Uber and Lyft and then subsequently entering into relationships with companies that have platforms but more capacity, such as DoorDash and Postmates. In an effort to lower cost and to have control over the process, the company is piloting Spark Delivery – its own crowd sourcing delivery model – and Associate Delivery 2.0.

In order to retain buyers who expect quick, cheap shipping, Walmart uses physical locations as distribution points for online orders of groceries and other goods. Its e-commerce sales growth has been overrunning brick-and-mortar sales, leading the company to cut new store openings. The company plans to open fewer than 10 U.S. stores in the next fiscal year.

Sam’s Club, owned by Walmart, announced earlier this year that Plus members get free shipping on 95% of items online and since then, 1 million members have upgraded. It continues to roll out its “scan & go” initiative and plans to extend it to the adult beverage category store-wide.

For fiscal 2020, Walmart expects comparable sales growth of 2.5% to 3%, following the expected growth of around 3% this year – the fastest pace since 2008.

Capital expenditures are expected to be flat in fiscal 2020 at about $11 billion, with around 40%-50% expected to go towards e-commerce, technology and supply chain initiatives. 

In the international segment, an emphasis was put on Flipkart. BMO reported Walmart’s objective is to have Flipkart attain profitability over time, as e-commerce in India is one of the most attractive global growth opportunities, making Flipkart well-positioned.

For the full story, go to this week’s Food Institute Report.