Walmart (NYSE:WMT) investors know full well the trouble caused by e-commerce megasite Amazon.com (NASDAQ:AMZN). After all, anyone who has gotten lost in the depths of Wally World knows full well that the big appeal from Walmart has nothing to do with clean stores or helpful staff. It’s all about low prices — prices that Amazon can match or even beat.
So how can Walmart fend off the Internet edge that Amazon has on its brick-and-mortar model? By pushing even more into the digital space to both compete with AMZN and to prop up already thin margins.
The move will be interesting to watch, especially after the race-to-the-bottom Christmas shopping season showed the increasing weight of “showrooming” and price-matching on the bottom line. After all, you can only lowball your competitors for so long before you eventually push yourself out of profitability. Commercial real estate leases, in-store staff and other expenses that don’t exist at e-commerce giants like Amazon naturally allow them to be the most competitive on pricing.
Besides, there’s no guarantee that price matches in brick-and-mortar locations stop the bleeding. Consider that over 4 in 10 adults admit to showrooming at big-box stores like Walmart, Best Buy (NYSE:BBY), Target (NYSE:TGT) and others before buying the same product online for cheaper — and often get their purchase in few days or even less thanks to expedited shipping options.
So rather than beat Amazon, Walmart is trying to join it with a big digital push and this UPS partnership. Dubbed Walmart To Go, the move will feature same-day delivery for $10 in northern Virginia, Philadelphia and Minneapolis, with the San Francisco area coming online within a year. Deliveries will be made by UPS using its extensive distribution network rather than building out a warehousing and shipping network that could rival Amazon.
Will it work? Who knows. Amazon’s reach is big and its grip is tight — but Walmart comes in at #4 among the top Internet retail sites ranked by Internet Retailer. Its online sales division grosses more than both Netflix (NASDAQ:NFLX) and Dell (NASDAQ:DELL) … so WMT is hardly starting from scratch.
Furthermore, Walmart could post $9 billion in global e-commerce revenue for fiscal 2013. If the margins are only slightly better on that business than brick-and-mortar sales, it could have a material impact to the bottom line.
It will be interesting to watch for Walmart shareholders … and also for UPS investors if the service catches on and becomes tied to a growing WMT e-commerce push.
- The race to the bottom in prices continues, with Target vowing to match prices year-round — and not just for the holidays. (Daily Finance)
- Of course, a quarter of holiday shoppers admitted to “showrooming” despite a big price-match push in December … so good luck, Target. (Econsultancy)
- And Christmas discounting produced largely lackluster sales growth for most physical retailers. (FT.com)
- Who were the big e-commerce winners for December? (Internet Retailer)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.