The Silver Lining In Walmart’s Slowing E-Commerce Growth

May 20, 2016, 5:01 PM UTC
Photograph by Getty Images

When Walmart (WMT) reported on Thursday that comparable sales at its U.S. stores had risen in the first quarter, its stock rose the most in eight years in a relief rally.

After a week of dismal earnings reports by many retailers, investors were just glad to see that Walmart had been able to attract more shoppers to its stores for the sixth straight quarter in its biggest market and build sales for the eighth quarter. (It says a lot about the state of retail that Wall Street got so excited over a 1% gain.)

But amid the signs of progress was a data point that normally would give Wal-Mart Stores investors pause: e-commerce sales rose only 7% in the quarter, slowing down yet again and suggesting the retailer is struggling to keep pace with (AMZN).

“Growth here is too slow,” Walmart CEO Doug McMillon said on pre-recorded call.

According to recent data from eMarketer, Walmart is the second largest U.S. online retailer, with $12.5 billion in sales in the last year (the figure is $13.5 billion globally) But that is a far cry from the $82.8 billion Amazon pulled in. What’s more, Walmart’s digital growth is well below the economy-wide rate of 15.1% in the first quarter, according to the U.S. Department of Commerce. E-commerce accounts for about 3% of Walmart sales, compared to 7.8% across retail.

Some of the sluggishness comes from customers not yet knowing how much they can buy on, something McMillon said would change. (Walmart now offers 10 million different kinds of items, and it is adding to that. In contrast, Amazon’s assortment is about 300 million items.) “It takes time to build the assortment to the point where customers realize the depth of assortment,” McMillon added. Walmart is building up its marketplaces as well, in addition to what it sells itself.

Earlier this year, the company merged its tech teams in Silicon Valley (e-commerce focused) and at company headquarters (in-store tech, largely) in Bentonville, Arkansas to speed up collaboration and reduce duplication.

At the same time, Walmart’s big tech investments are heavily focused on stores, how customers get served in them, and shop in them. On that front, Walmart has more it can boast about.

Last year, Walmart equipped store workers with handheld smart devices to give them a better handle on in-store inventory, spend less time going back and forth between the sales floor and the stock rooms, and spend more time serving customers. That has led to what the company claims are improving customer service scores, key to bringing in more shoppers to its stores.

Walmart is also in the process of rolling out Walmart Pay, a mobile payment feature in its app that is intended to foster loyalty and speed up the checkout process, addressing a major complaint in recent years. The app is also intended to get more people to open a account. And Walmart is rolling out its grocery curbside pickup service, bringing it to nine new U.S. markets last quarter with another nine by the end of May, as it looks to fend off Amazon’s Prime Fresh service, among others. These initiatives have been central to Walmart’s sales and traffic improvements.

It’s clear that Walmart is feeling the heat from Amazon and, increasingly, Target (TGT), whose digital sales rose 23% last quarter. Walmart recently announced it was testing two-day free delivery as part of a shipping membership service it is testing that is similar to Amazon Prime.

While Walmart’s e-commerce growth is wanting, the company is making progress in using tech to get people to shop in its stores, something Amazon doesn’t have to think about.

“The investments that we are building show that we want people shopping at Walmart,” Walmart CFO Brett Biggs told reporters on a call on Thursday. “We want customers shopping at Walmart, whether that’s in stores, whether that’s in pick-up.”

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