Amazon’s (AMZN, Financial) recent decision to enter into the brick-and-mortar space should have made Walmart (WMT, Financial) breathe a huge sigh of relief because it kind of validates the argument that e-commerce cannot wipe out the physical/in-store style of retailing.
Companies that successfully integrate online and offline sales channels by having robust delivery mechanisms – such as in-store/direct-to-home delivery/order online and pick up – will be the ones that will stay relevant in a future world dominated by connected devices.
There are several decisions that Walmart made in 2016 that are now pushing the company toward a better place in the retail world. Let's take a closer look at them.
Decision to buy Jet.com and investment in Flipkart
During the second half of 2016, Walmart announced its decision to buy Jet.com for $3.3 billion in cash and stock. Despite investing billions of dollars in technology over the years Walmart's online sales never lived up to the promise. That pushed the management to look toward in-organic methods, giving its e-commerce department a boost.
By buying Jet.com, Walmart had immediate access to Jet’s huge talent pool that knew all about e-commerce operations as well as the technology expertise the company had built over the years. Jet’s pricing algorithm was focused on pushing the cost of goods as low as possible for the consumer, which ties in perfectly with Walmart’s motto of everyday low prices.
In return, Jet now has access to Walmart’s massive physical footprint and can engage Amazon in a bitter margin war because it will be difficult for other companies to match the prices that the Jet-Walmart combo can offer due to their size and scale.
Walmart’s decision to invest in India’s leading retail outlet Flipkart, which is competing with Amazon to stay at the top of India’s e-commerce market, also shows that the company has now realized it's time to follow Amazon in international markets. If it keeps waiting, Amazon will have practically eaten up most of the international markets by the time Walmart is ready to enter.
Decision to scrap Walmart Express but double down on Neighborhood Markets
The other major decision that has come at the right time is pulling the plug on its smallest store format, Walmart Express, but doubling down on its Neighborhood Market concept. Walmart had 645 Neighborhood Markets in June 2015, which has now grown to 686 units. As a smaller concept store, Walmart does have a huge opportunity to increase its Neighborhood Market count in the U.S.
With its 3,508 supercenters and a growing count of Neighborhood Markets that can be placed inside highly populated areas, Walmart already has a physical footprint that will give any retail company a run for its money. All it has to do now is bring in the online sales volume that can exploit the existing network, and it's a combination that will keep it moving for years to come.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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