Wal-Mart sees online sales surging 40% as it pursues Amazon

NEW YORK: Wal-Mart Stores Inc expects US e-commerce sales to surge 40% in the next fiscal year as its online investments allow the retail giant to play catch-up with Amazon.com Inc.

The company also plans to add 1,000 online-grocery locations – roughly double the current number of sites, which help fill orders from customers buying their food on Walmart.com. Total sales, meanwhile, are expected to grow at or above 3%, the retailer said as part of a forecast issued ahead of its shareholder meeting yesterday.

The upbeat guidance sent WalMart shares up as much as 2.6% to US$82.62 in early trading. That follows a 17% increase this year through Monday’s close.

The outlook lends evidence to the view that Wal-Mart’s company-changing bet on e-commerce is beginning to pay off. Chief executive officer Doug McMillon has channelled more than one-third of the business’s capital spending budget into digital initiatives – like specialised e-commerce distribution centres – up from just 20% a few years ago.

“It is clear that Wal-Mart intends to continue to turn up the heat online,” Moody’s Corp. analyst Charlie O’Shea said in a note. “We still believe Amazon’s lead in online retail is insurmountable; however,

Wal-Mart continues to widen the gap between itself and all other brick-and-mortar retailers.”

Wal-Mart’s investments in e-commerce have already helped boost sales. The US online division saw increases of at least 60% in the past two quarters, four times the growth rate of the broader e-commerce sector.

Wal-Mart has introduced a simpler way to re-order products bought frequently, free shipping on orders of US$35 or more, and it’s offering discounts on thousands of items purchased online and picked up at a store.

But the online push has come at a cost: Profit margins on online orders are narrower than those for in-store sales, due to fulfilment expenses. In the second quarter, Wal-Mart’s gross profit margin narrowed for the first time in two years.

The company also is teaming up with Google to let shoppers order by voice, and it said this week that it’s making the returns process simpler and faster for customers who use its mobile-shopping app.

It’s also rolled out curbside pickup of online grocery orders in about 1,000 of its US stores, putting it way ahead of rival Target Corp, which only offers the service for non-perishable items in its hometown of Minneapolis.

Wal-Mart also announced plans to buy back US$20bil in shares in fiscal 2019, which ends around January of that year. And the company reiterated its profit target for the current year, saying earnings would be US$4.18 to US$4.28 a share.

Earnings will climb about 5% in fiscal 2019, also in line with previous guidance, Wal-Mart said.