A Wal-Mart store Salinas, California, US. Picture: ISTOCK
A Wal-Mart store Salinas, California, US. Picture: ISTOCK

New York — Wal-Mart Stores expects US e-commerce sales to surge 40% in the next fiscal year as its online investments allow the retail giant to play catch-up with Amazon.com.

The company also plans to add 1,000 online-grocery locations — roughly double the current number of sites — which help fill orders from customers buying their food on Walmart.com. Total sales, meanwhile, are expected to grow at or higher than 3%, the retailer said as part of a forecast issued ahead of its shareholder meeting on Tuesday.

The upbeat guidance sent Wal-Mart shares up as much as 2.6% to $82.62 in early trading. This follows a 17% increase this year by Monday’s close.

The outlook lends evidence to the view that Wal-Mart’s company-changing bet on e-commerce is beginning to pay off. CEO Doug McMillon has channeled more than one third of the business’s capital spending budget into digital initiatives — like specialized e-commerce distribution centres — up from just 20% a few years ago.

"It is clear that Wal-Mart intends to continue to turn up the heat online," Moody’s analyst Charlie O’Shea said in a note. "We still believe Amazon’s lead in online retail is insurmountable; however, Wal-Mart continues to widen the gap between itself and all other bricks-and-mortar retailers."

Wal-Mart’s investments in e-commerce have already helped boost sales. The US online division saw increases of at least 60% in the past two quarters, four times the growth rate of the broader e-commerce sector. Wal-Mart has introduced a simpler way to re-order products bought frequently, free shipping on orders of $35 or more, and it’s offering discounts on thousands of items purchased online and picked up at a store.

However, the online push has come at a cost: Profit margins on online orders are narrower than those for in-store sales, due to fulfillment expenses. In the second quarter, Wal-Mart’s gross profit margin narrowed for the first time in two years.

Voice orders

The company also is teaming up with Google to let shoppers order by voice, and it said this week that it’s making the returns process simpler and faster for customers who use its mobile-shopping app. It’s also rolled out curbside pick-up of online grocery orders in about 1,000 of its US stores, putting it way ahead of rival Target, which only offers the service for non-perishable items in its hometown of Minneapolis.

Wal-Mart also announced plans to buy back $20bn in shares in fiscal 2019, which ends around January of that year, and the company reiterated its profit target for the current year, saying earnings would be $4.18 to $4.28 a share. Earnings will climb about 5% in fiscal 2019, also in line with previous guidance, Wal-Mart said.

"We have good momentum in the business," McMillon said in a statement. "We’re executing our strategy and moving with speed to win with the customer, who is more connected than ever."

Grocery lead

Online sales still account for a small percentage of Wal-Mart’s revenue, and no one expects it to overtake Amazon in e-commerce orders, which generated the majority of its roughly $136bn in sales from online shopping last year.

In the second quarter, 62% of all US internet users visited Amazon, a "remarkably high number", according to Wells Fargo & Company analysts, illustrating just how deeply the company has penetrated the online market. But Wal-Mart’s investments should help the company maintain its lead in the grocery market, even as more customers move online, according to Moody’s O’Shea.

Wal-Mart has "unmatched physical resources, including stores and supply chain and, in the process, is providing consumers with a compelling online alternative to Amazon," he said.

Bloomberg

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