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Here's how Walmart is leveling the playing field in its battle against Amazon

Julia La Roche

Walmart (WMT), locked in a pitched battle for retail supremacy with Amazon (AMZN), has online shoppers to thank for its growing success.

Even amid a quarter that fell short of Wall Street’s hopes, the big box retailer’s thriving e-commerce business — driven largely by the popularity of online grocery — is firing on all cylinders.

“There’s definitely been a shift in consumer spending,” Jharonne Martis, director of consumer research at Refinitiv, told Yahoo Finance on Tuesday. She pointed out that the narrative at Walmart used to be about in-store traffic, but now it’s about the online growth. 

To be sure, foot traffic is still the retailer’s bread and butter — and a metric that’s closely watched by Wall Street., an analytics firm, noted recently that despite a shortened holiday season, Walmart’s store traffic during November, December and January were “significantly higher” compared to the prior two -year period.

Yet Walmart is becoming a force in Internet retail, with much of that growth derived from its aggressive rollout of online grocery pickup and delivery. Last quarter, Walmart’s e-commerce sales skyrocketed by 35%, boosted by the grocery category.

As a result, Walmart—which first introduced a pilot online grocery program in late 2013— is breathing down Amazon’s neck.

At Walmart’s investor meeting on Tuesday, CFO Brett Biggs noted that the company expects that the e-commerce business “will approach $50 billion” — representing a doubling in just over two years. The company also expects this year’s U.S. e-commerce to slightly narrower losses from last year. 

Like all retailers, Walmart is upping the game “because of severe completion of the one-day shipping from Amazon,” Refinitiv’s Martis told Yahoo Finance.

“This is not Walmart by itself. This is the retail landscape overall is facing this increased competition,” she added. 

‘Room to run’

In 2017, Amazon acquired Whole Foods in a $13.7 billion deal, added Whole Foods delivery to its Prime service, and recently began cutting prices at the upscale grocer.

That September, Walmart opened its 1,000th pickup location, and has since ramped up its expansion efforts. As of the end of 2019, Walmart offered grocery pickup at 3,200 locations and delivery at 1,600 locations across its fleet of nearly 4,000 U.S. stores.

Martis noted that Walmart has delivered “outstanding” numbers, with two consecutive years of e-commerce above 30%, while also delivering five years of positive comparable-store sales. During the fourth quarter, Walmart booked e-commerce growth of 35% and 37% for the full year. 

“Walmart is doing better than other players,” said Martis.

“When you look at the other spectrum, nobody is near two straight years of nearly over 30% straight e-commerce sales,” she said, adding that “Walmart is in the best position to compete with the likes of Amazon.” 

Speaking at Walmart’s Investment Community Meeting in New York on Tuesday, CEO Doug McMillon expressed confidence that there’s “room to run” on both grocery and discretionary when it comes to e-commerce growth. 

He highlighted the benefit the web-based grocery service is having on the stores — especially when it comes to the quality of products offered. 

“If you look at the grocery side of things, the first thing that goes through my mind is product quality, and what we are doing in the supply chain to make sure stores look great,” the CEO said.

“Not only is that product what we put in front of customers every day in stores but it's what we pick and deliver,” McMillon stated, adding that physical stores with grocery options “continued to show strong comps.” 

It suggests Walmart’s physical stores — where data found a 3% traffic gain in the November-January period compared to a year ago — can be bolstered by its growing online dominance.

Aside from grocery, McMillon said stores “increasingly can start to pick general merchandise. So you will start to see a basket that looks like it’s broader than just food and consumables.” He also cited an opportunity with to grow — especially with next-day delivery and expanding the assortment of items available for that service. 

Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter.