Wal-Mart Streamlining its Online Team to Compete with Amazon

Wal-Mart Stores, Inc. WMT is reorganizing its e-commerce unit and changing job roles to focus on customers and strengthen its online team.

Per Bloomberg, Wal-Mart promoted Marc Lore, the founder of Jet.com (acquired last year), to the position of CEO of Wal-Mart's e-commerce operation. The changes are implemented to give tough competition to e-commerce giant, Amazon.com, Inc. AMZN. The latter has been putting fierce pressure on Wal-Mart in fields like food, grocery and apparel. In addition to its dominance in e-commerce, Amazon is leading the market in cloud computing services with expansion plans in the near term.

Not only Wal-Mart, other big retailers such as Macy's, Inc. M, Kohl's Corporation and Sears Holdings Corporation have been struggling to gain market share in the face of increased competition by online rivals.

Notably, Wal-Mart is investing heavily in online operations. On Dec 30, Wal-Mart’s e-commerce company Jet.com acquired ShoeBuy.com for $70 million. The deal will help Wal-Mart’s Jet.com challenge Zappos.com, Amazon’s footwear site. Last year, the company also aimed to acquire a stake in India's largest e-commerce firm, Flipkart Online Services Pvt., in order to expand in the fast-growing online retail market. Bentonville, AR-based Wal-Mart is also aggressively expanding its e-commerce business in China, where it has been struggling for years. In Jun 2016, Wal-Mart inked a deal with JD.com, the second-largest online retailer in China, to sell its Chinese eCommerce business, Yihaodian to JD.com in exchange for a 5% equity stake in the company. Later in October, Wal-Mart increased its stake in JD.com to 10.8%.

Apart from acquisitions, Wal-Mart launched its own mobile payment system called Walmart Pay. This allows shoppers to pay through its existing smartphone app. The largest grocer in the U.S. is already expanding its online order options to offer grocery deliveries within two days for a $49 minimum annual fee through its ShippingPass e-commerce subscription program. It has also partnered with ride hailing services, Uber and Lyft for speedy online grocery deliveries. Moreover, it intends to roll out drones in the near term for product deliveries to Wal-Mart facilities as well as to consumer homes.

However, higher investments in e-commerce activities have increased the expense burden of the company, which was already pressurized due to a hike in wages and training costs. In fact, last week, the retailer reported that it will eliminate about 1000 jobs this month, mostly in human resources department, as it is struggling with rising expenses.

Wal-Mart Stores, Inc. Net Income (TTM)

 

Wal-Mart Stores, Inc. Net Income (TTM) | Wal-Mart Stores, Inc. Quote

Apart from the huge expense burden, the Zacks Rank #4 (Sell) company has been grappling with near-term headwinds, which are raising concerns. Increased competition from traditional and online players and slowdown in international operations along with a strong dollar are hindering sales. Higher labor costs, along with the company’s efforts to overhaul its stores and invest in its online operations, will weigh on earnings. The industry-wide weakness in the grocery/supermarket business is impacting Wal-Mart’s operations.

Over the past two years, the stock has exhibited a bearish run on the index. Notably, the stock  declined by 22.6% in the said period and underperformed the Zacks categorized Retail-Wholesale sector, which showcased improvement of 9.4%. Notably, the broader Retail and Wholesale sector is also placed at bottom 19% of the Zacks Classified sectors (13 out of 16).

Stock to Consider

A better-ranked stock in the broader retail sector is Best Buy, Inc. BBY, which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Best Buy has an expected earnings growth rate of 11.87%.

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