Walmart expects 40% hike in online sales next year
Retailer has spent big for online growth but is dwarfed by Amazon.
Walmart expects U.S. e-commerce sales to surge 40 percent in the next fiscal year as its online investments allow the retail giant to play catch-up with Amazon. com.
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 percent, the retailer said as part of a forecast issued ahead of its shareholder meeting Tuesday.
The upbeat guidance triggered Walmart’s biggest rally in more than a year, lending evidence to the view that its company-changing bet on e-commerce is beginning to pay off. Chief Executive Officer Doug McMillon has channeled more than one-third of the business’ capital spending budget into digital initiatives, such as specialized e-commerce distribution centers, up from just 20 percent a few years ago.
“It is clear that Walmart intends to continue to turn up the heat online,” Moody’s analyst Charlie O’Shea said. “We still believe Amazon’s lead in online retail is insurmountable; however, Walmart continues to widen the gap between itself and all other brick-and-mortar retailers.”
The stock climbed as much as 4.9 percent Tuesday, the biggest intraday surge since May 2016. The gain follows a 17 percent increase this year through Monday’s close.
Walmart’s investments in e-commerce already have helped boost sales. The company expects to reach U.S. online revenue of $11.5 billion this year.
Walmart has introduced a simpler way to reorder products bought frequently, free shipping on orders of $35 or more, and 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 fulfillment expenses. In the second quarter, Walmart’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 return process simpler and faster for customers who use its mobile-shopping app.
Walmart also has rolled out curbside pickup of online grocery orders in about 1,000 of its U.S. stores, putting it way ahead of rival Target, which only offers the service for nonperishable items in its hometown of Minneapolis. Walmart has said that in some markets, the online grocery offering brings in customers who had never shopped at the retailer.
Walmart has significantly slowed down its pace of new store development. The retailer will open fewer than 15 Supercenters next fiscal year, down from about 35 additions in the current year. The Bentonville, Ark.-based company also will develop fewer than 10 grocery-store-sized Neighborhood Markets, which have been a key driver of growth in recent years. That represents a slowdown from about 20 this year.