Walmart Inc.'s (WMT, Financial) e-commerce strategy could catalyze its growth, leading to a wider economic moat. The international retailer is seeking to reduce online delivery times and increase product availability for a wider range of consumers.
Its investments in innovation and improving the customer experience may lead to a more efficient supply chain as well as greater differentiation compared to peers.
Although the stock is not cheap, having gained 31% over the last year versus a rise of 8% for the S&P 500, it appears to have investment appeal.
E-commerce growth
Walmart’s investments in its e-commerce offering could help to strengthen its competitive position. So far this year, for example, the company has recorded a 5 percentage point increase in its customer value index score as new brands have provided customers with more choices.
The company’s increasing speed of delivery has contributed to improving e-commerce customer satisfaction levels, with it now offering a free next-day delivery service that does not require a membership fee. It has also scaled up its grocery pickup and delivery offerings and is on track to offer same-day grocery delivery to approximately half of the U.S. population from 1,600 stores and grocery pickup to 80% of U.S. consumers from 3,100 stores by the end of the year.
In addition, Walmart is seeking to enhance the omnichannel shopping experience for customers through innovative features such as voice ordering capabilities for groceries. Alongside the company’s increasing flexibility in terms of having a range of delivery and pickup options available, this could lead to increasing customer loyalty through greater convenience versus sector peers.
An improving customer experience
Walmart is aiming to offer a better customer experience than rivals through the increasing use of artificial intelligence. For example, the company launched a project called the Intelligent Retail Lab in the most recent quarter. It focuses on using artificial intelligence to provide real-world solutions to issues such as shelf availability and inventory management.
In order to increase speed and efficiency, the company is rolling out self-checkout lanes in international markets such as Mexico. The acquisition of Polymorph Labs last quarter is expected to make advertising through the company’s website easier for brands, while delivering better-targeted ads to customers.
Additionally, the company is investing in broadening its range of products. In the most recent quarter, for example, it entered into a new Angus beef supply chain that will provide customers with access to premium meats in the next fiscal year. Walmart is also expanding its range of private brands as it seeks to offer an increasingly unique offering versus the wider retail sector.
Threats
The performance of Walmart’s international operations was mixed in the most recent quarter. In the U.K., Walmart-owned Asda’s comparative sales declined 1.1%. Continued weak consumer confidence in the U.K., as highlighted by a GfK consumer sentiment reading of -10 (where a negative figure represents "pessimism"), could lead to further sales declines for Asda in the near term. Likewise, the company’s comparative sales growth of 1.2% in Canada and 0.4% in China last quarter suggest its overall performance may be held back by weak international growth rates.
Walmart’s international growth prospects are expected to be catalyzed by investments in the customer experience. In Canada and the U.K., for instance, customer satisfaction scores continue to increase, while in China the expansion of the company’s delivery network is leading to reduced delivery times and improved product availability. It is also maintaining a disciplined stance on costs in order to mitigate the impact of a rising minimum wage in countries such as the U.K. and Canada.
Outlook
The company's earnings per share are forecasted to grow 5% in the next fiscal year. Its forward price-earnings ratio of 23.1 is relatively high, but its strategy could deliver improving financial performance in the long run.
The investments Walmart is making in e-commerce and improving the customer experience may strengthen its position versus peers, allowing it to build a higher degree of loyalty.
The use of artificial intelligence and other innovative projects could lead to greater efficiency and lower costs.
While Walmart has beaten the S&P 500 by 23% in the last year, the stock could produce further outperformance of the index over the long run.
Disclosure: The author has no positions in any stocks mentioned.
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