Yahoo Finance Is Wal-Mart Stores Inc. a Buy?
Wal-Mart (NYSE: WMT) treated the internet as a sideline for a very long time. That changed in August 2016, when the retailer bought Jet.com for $3.3 billion.
That was a very risky deal. The brick-and-mortar retailer paid a huge premium for a money-losing company that was doing only $1 billion in sales. It turned out, however, that Wal-Mart wasn't just buying a company. It was buying a leadership team led by serial entrepreneur Marc Lore.
The retailer immediately put Lore in charge of its digital operations and gave him free rein to make changes. That has happened quickly, with Lore not only altering how the company operates online, but also working to make it a true omnichannel retailer.
What has Wal-Mart done?
As the saying goes, it's hard to teach an old dog new tricks. Wal-Mart has been the very definition of an old dog. It's not that the company didn't evolve, but it has a long history as a traditional retailer, and shaking decades of "physical store first" thinking has proved to be a challenge.
Lore and his team quickly shook that up. I saw him speak at a conference earlier this year, and he talked about how CEO Doug McMillon had embraced the idea of disrupting long-held practices and truly integrating digital and physical operations.
That has happened at a staggering pace. Lore has tried a number of ways to leverage the company's brick-and-mortar stores, while also building its online operations. Not every move he makes will work, but the digital executive has Wal-Mart operating like a start-up. These are just some of the innovations the company has tried in the past year:
Dropping its $50-a-year ShippingPass program and offering free shipping on digital orders over $35.
Adding in-store Pickup Towers for consumers to pick up online orders.
Creating Express Returns, a way to initiate in-store returns of digital orders through the chain's app to make the process much faster.
Adding in-store pickup of online grocery orders.
Lore has built on the one major advantage Wal-Mart has over Amazon.com (NASDAQ: AMZN): its stores. He has made it so customers can just shop, be it on the chain's website, on its app, or in its stores without there being much difference. That gives consumers a best-of-both-worlds scenario. They can have any combination of immediacy and convenience they want at that particular moment.
Is it working?
It's important to note that the battle between Wal-Mart and Amazon won't be judged on one or even a few quarters. It's going to be a long struggle, where both companies have a strong chance of being winners.
For Wal-Mart, however, recent results have been strong. In Q2 2017, Wal-Mart saw total revenue rise by 2.1% while U.S. comparable-store sales rose by 1.8% as traffic increased 1.3%. On the digital side, net sales rose 60% and gross merchandise value sold climbed by 67%.
This won't be a straight line for Wal-Mart. The company is throwing a lot of ideas against the wall, and not all of them will work. In the long term, however, flexibility and being able to act like a start-up will help the brand remain relevant and thrive.
Amazon will, of course, fight back, and its move into physical stores with Whole Foods allows it to compete more fully. Nonetheless, Wal-Mart has room to grow, and it's on the path to do that.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.
