Walmart’s online sales surge during the pandemic, bolstering its place as a strong No. 2 to Amazon
Walmart’s years of investing billions in integrating stores and e-commerce have paid off handsomely during this pandemic.
The retailer’s online sales in the U.S. rose 74% in the first quarter, as customers stocked up on essentials like food and cleaning products and items like toys, electronics, and home furnishings, attracted by the option of being able to drive up to a store to collect an order rather than venture in—or to simply order items on Amazon.
The news sent shares in Walmart, the No. 1 company on the Fortune 500, up 2% on Tuesday. They have risen 24% since the first U.S. lockdowns started in early March and are near all-time highs. Walmart also operates a large international business and the Sam’s Club warehouse chain.
The Walmart U.S. online surge lifted overall comparable sales, which also includes sales at stores open at least one year, 10%, Walmart’s best performance in almost 20 years. It was better than the 8.6% Wall Street estimate compiled by Consensus Metrix. The U.S. generates 60% of the company’s global sales.
And it solidified Walmart’s place in shoppers’ minds as a viable alternative to Amazon for online purchases, all the more since Amazon had some struggles early on with lagging delivery times. Walmart’s network of 4,600 stores has always been its not-so-secret weapon against Amazon.
“Their investments and the commitment they’ve made to online are paying off. They’re a very strong No. 2 player to Amazon,” says Brian Yarbrough, an analyst with Edward Jones.
Shoppers did stock up in March, buying more on every trip, but making fewer trips: Average spending per trip was up 16.5%, but the number of transactions was down 5.6%. The only thing dampening its performance: out-of-stocks on items like toilet paper, Clorox wipes, office furniture, and meat. Walmart chief executive Doug McMillon said the company is “working intensely to improve in-stocks for high-demand items and adjust order volumes” and expects “the environment to stay quite volatile in the coming months.”
What was even more important for Walmart in having strong digital sales was that, like other retailers such as Costco, Home Depot, and Target, Walmart had to limit traffic at physical stores as part of its virus spread mitigation. Indeed, in-store sales slowed during the first half of April but ramped back up mid-month as government stimulus money reached consumers, Walmart said.
The company also said it was shutting down Jet.com, the online retailer it bought in 2016 for $3.3 billion and whose value lay in reenergizing Walmart’s e-commerce operations and in bringing in a strong digital team.
While Walmart, like many other retailers, is still grappling with out-of-stock items, analysts think this big test is one that Walmart has passed with flying colors and indicates the company is likely to largely hang on to these gains.
“We would expect Walmart to leverage these experiences and look to retain new customers as well as continue to deepen and broaden all customer relationships,” wrote Moody’s Walmart analyst Charlie O’Shea.
What’s more, O’Shea said, despite the pressure on margins, given the higher costs inherent in e-commerce, the results at least showed Walmart “was able to largely handle this growth surge within its existing capability.” And the e-commerce loss was narrower than a year earlier.
That capability was indeed tested as Walmart’s shoppers stocked up: Its online pickup and delivery business increased fourfold during some periods of the March peak period, executives said on a call with Wall Street analysts.
Walmart is facing in Amazon a ferocious rival that keeps innovating, and Walmart too has new initiatives to counter that: It is rolling out a subscription-based grocery delivery offering and, in some markets, is offering two-hour home delivery service—two weapons to help it fight in the next chapter of the online wars.
More immediately, though, Walmart still has to contend with an unstable economy, which is enduring “significant uncertainty” owing to the pandemic: More than 36 million Americans have filed for unemployment benefits in the past few weeks alone. So Walmart, despite being one of retail’s biggest winners, withdrew its full-year financial forecasts because of all the question marks surrounding the U.S.’s economic future.