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How Amazon is eclipsing Walmart's best efforts to dominate e-commerce

A solar eclipse. <a href="https://www.flickr.com/photos/kevlar/7244982704" rel="nofollow noopener" target="_blank" data-ylk="slk:Source: Kevin Baird/Flickr" class="link ">Source: Kevin Baird/Flickr</a>

Walmart (WMT) shares got crushed Friday following news that Amazon (AMZN) is aggressively moving into the grocery store business by scooping up Whole Foods.

But while the online giant Amazon has been expanding its physical footprint, brick-and-mortar giant Walmart has been ramping up its own e-commerce business to compete. According to UBS analysts, Walmart.com’s stock keeping units (SKUs) have increased to around 50 million today from around 10 million a year ago.

In fact, Walmart on Friday announced that it is buying Bonobos, a menswear brand built on the internet, for $310 million in cash. This is Walmart’s latest effort to expedite its digital transformation. Walmart has been selling online since 1999, and now is America’s third-largest e-commerce retailer, according to eMarketer. But Walmart’s online sales of $14.4 billion last year are still a far cry from Amazon’s $94.7 billion.

“Amazon has hundreds of millions of SKUs and billions of product pages, so it’s safe to assume they really are the ‘everything store’ at this stage,” Barclays’ Ross Sandler said earlier this year.

‘A laggard in the space of online’

“Walmart has traditionally been … a laggard in the space of online,” Brendan Witcher, principal analyst at Forrester Research, told Yahoo Finance. “It used to take offline strategies and philosophies and try to apply them online.”

After sluggish growth in 2015, Walmart is catching up by making acquisitions, targeting companies that have already achieved success in a particular area. One notable deal is with Jet.com, an e-commerce startup Walmart agreed to buy for $3.3 billion last August, which brought its founder Marc Lore to oversee Walmart.com.

In this Monday, May 2, 2016, file photo, Jet.com CEO Marc Lore speaks during an interview in Hoboken, N.J. AP Photo/Seth Wenig, File
In this Monday, May 2, 2016, file photo, Jet.com CEO Marc Lore speaks during an interview in Hoboken, N.J. AP Photo/Seth Wenig, File

In January, Walmart also announced free two-day shipping for purchases above $35 to compete with Amazon’s Prime membership, which costs $99. This move fueled a surge of 63% in Walmart’s online sales in the first quarter in 2017.

“Walmart continued to announce doing things that other retailers have been doing for a while and successfully. By being the laggard, they almost have a blueprint for how to do e-commerce well,” said Witcher, who believes the retail giant in brick-and-mortar space is finally in the right direction to improve the customer experience online.

‘I only use the Walmart website to see if that store has what I want’

In October, Walmart said it was planning to slow its new store openings and double down on its online efforts. Despite billions of investments on e-commerce and double-digit gains in recent quarters, Walmart’s online sales only make up 3% of its total sales.

“I never really viewed them as an online shopping site,” said Yatin Kaushal, a 22-year-old software engineer living in New York. “I only use the Walmart website to see if that store has what I want. I can just drive out there and get it within the hour.”

To attract people like Kaushal, who grew up driving to Walmart’s stores, Walmart is trying to take advantage of both its website and the more than 5,000 stores it operates across the US. In April, it began offering discounts on products for online shoppers who pick up orders in stores.

“We want customers shopping at Walmart,” said Walmart CFO Brett Biggs during a media call last May, “whether that’s in stores, whether that’s in pick-up, whether that’s getting things delivered to their homes.”

The move was likely an attempt to one-up Amazon, which by and large doesn’t have physical locations for people to pick up items they see online. In turn, Amazon’s decision to buy Whole Foods was likely aimed to compete with Walmart — which is one of the nation’s biggest grocery retailers and even sells organic foods.

It may be time for Walmart to take another shot at Amazon.

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