Walmart Sees Its Future in E-Commerce Instead of Big-Box Stores

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Walmart E-commerce

Walmart CEO Doug McMillon told investors last week that the retailer plans to pivot heavily away from building supercenters to drive growth and instead wants to invest even more heavily in e-commerce that, in turn, will draw more shoppers to its existing stores.

By contrast, Target CEO Brian Cornell noted last week that his chain faces the same difficulty with stagnation in its large stores and said that the No. 2 discount chain plans to invest much more heavily in opening many smaller stores, mainly in urban locations. Walmart earlier tried and abandoned a similar strategy by focusing on smaller stores in its traditional suburban and rural markets.

The fact that both chains have reached such critical moments in their history almost simultaneously says a lot about two megatrends: the sluggish spending by financially strapped American consumers as the US economy only crawls to growth, and the disruptive effects of e-commerce and other factors on brick-and-mortar powerhouses.

McMillon told investors that Walmart planned to open only about half as many supercenters next year as it did last fiscal year, instead directing more of its $11 billion in annual capital spending toward boosting e-commerce sales, related technology, and customer service in existing stores.

“I don’t think it’s an exaggeration to say we are going through a transformative period,” said Macmillan. Fiscal 2018 earnings will be flat compared with fiscal 2017, which begins in January, he said.

To strengthen its online sales capabilities, Walmart bought e-tailer Jet.com for $3 billion in cash and $300 million in stock—the largest acquisition to date involving an e-commerce startup.

McMillon has managed to pull Walmart out of a same-store sales funk that afflicted it a couple of years ago, posting eight straight quarters of gains thanks to improvements in service and efficiency and to inventory reductions. Yet new stores have contributed most of its growth over the past four years.

The Wall Street Journal called Walmart’s pivot “a fundamental shift for the world’s largest retailer that will require significant investment and also weigh on profit.”

Consistent with the thrust of McMillon’s strategy overall, Walmart also almost doubled its stake in JD.com, becoming the third-largest shareholder in the Chinese e-commerce company, as it beefs up what the company called “a strategic alliance [that] will help us grow e-commerce even faster in China.”

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