Walmart+ to compete with Amazon Prime

A new membership service aims to speed up deliveries for Walmart customers through curbside pickup and delivery, strengthen relationships with them and collect valuable data.

online_shopping

The battle between two global consumer goods colossi ratchets up with launch of Walmart+.

Perhaps the most noteworthy, but fortunately one of the most innocuous, impacts of COVID-19 on retailers and consumers alike has been the meteoric rise of e-commerce activity or online shopping. With estimates that include a year-over-year rise of 97 per cent increase for Walmart (NYSE—WMT), the boost piques one’s interest about whether shoppers—or at least some percentage of them—will return to actual stores once the pandemic has passed or if those brick-and-mortar outposts will scale back their expensive real estate holdings to reflect the irreversible shift in shoppers’ behaviour.

Walmart is ready for a “market share battle”

The behemoth’s second quarter results were highlighted by a 97 per cent year-over-year increase in cyber sales, and an increase in adjusted EPS by 23 per cent for the same period in the previous year. These better-than-expected results for the recent quarter saw Raymond James analyst Robert “Bobby” Griffin maintain his Outperform rating. Bank of America Merrill Lynch International Securities analyst Robert Ohmes maintained his Buy rating. According to Mr. Ohmes, the case for owning Walmart’s stock is based on management’s omni-channel strategy. The following are the strategy’s key components:

■ Merging grocery and general merchandise apps;

■ Integrating in-store and online merchandising;

■ Discontinuing Jet.com to support the core Walmart.com brand; and

■ Increasing the availability of general merchandise items for pickup.

Mr. Ohmes also said that Walmart does not take kindly to market share losses and is ready for a “market share battle” with $US17 billion in cash on hand ready to be deployed. He noted: “While the industry has been rational through the COVID-19 disruption, we expect competition to intensify and Walmart to apply pressure on the group as comp sales wane.”

Walmart+ to compete with Amazon Prime

While the company reported its biggest earnings surprise in almost 30 years, the outstanding results were—as they were for many retailers—the result of shoppers’ use of their stimulus checks. Walmart CEO Doug McMillan said that the company will look to build on these gains by adding a membership service. He said the program will speed up deliveries for customers through curbside pickup and delivery, strengthen relationships with them and collect valuable data. Called Walmart+, the program is expected to compete with Amazon Prime.

The retailer said it spent about $US1.5 billion on costs related to COVID-19. During the pandemic, Walmart has hired about 400,000 hourly workers to fulfill online orders, clean stores and stock shelves.

Sam’s Club memberships increased by more than 60 per cent in the quarter—the highest quarterly increase in five years. The increase bodes well for the future, according to Moody’s vice president, Charles O’Shea. “A key factor moving forward will be how many ‘new’ shoppers remain as ‘normalcy’ returns, and the explosion of Sam’s Club memberships for the quarter are a favourable sign in this regard,” he said.

The company announced a pay raise for 165,000 of its associates. The pay raise is directly related to the introduction of what the company calls a “team-based operating model” in its Supercenters, aimed at increasing the flexibility of individual stores to respond to customers and local conditions.

This is an edited version of an article that was originally published for subscribers in the September 2020/Second Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.

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