Walmart has made steady investments in its online business this year and the bigger commitment could prove to narrow the competitive gap in e-commerce with online behemoth Amazon.
The significant e-commerce investment is an essential step forward for Walmart, Moody’s Investor Service said in a report Monday.
“We believe the world’s biggest retailer is particularly well positioned to close this gap as it leverages its powerful brick-and-mortar network, and that other large brick-and-mortar retailers will also continue to increase their online spend to stay competitive,” the report noted.
Amazon may have experienced exponential revenue growth in recent years—from 2010 to 2014, Amazon’s revenues grew by $40 billion to just over $70 billion (a 128 percent increase), whereas Walmart’s revenue grew $63 billion to $486 billion, though that represented a lower percentage change (15 percent) in the four years.
But according to Moody’s, it’s the dollars, not the percentage, that really count.
“While Amazon’s growth on a percentage basis in its retail division is impressive, we believe that over the last couple of years, Walmart’s online revenues are actually growing at a similar pace,” the report noted. “We estimate that online sales total around $40 billion for Walmart, Target, Best Buy, Staples, Toys “R” Us and Costco, with recent growth rates on pace with Amazon in percentage terms. In terms of overall retail, we still give a sizeable edge to Walmart.”
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For now, Amazon is still the one to beat when it comes to e-commerce, but as analysts note, e-commerce is the only space Amazon dominates, and it may be a substantial while still before online buys even reach 10 percent of total retail sales.
In response to Walmart’s steepest stock decline in a quarter century (a 10 percent one-day drop) on news last month that the big e-commerce spend plus investments to lower prices and raise wages would cut earnings per share by as much as 12 percent next fiscal year, Moody’s analysts still said the retailer is doing the right thing.
“In our view, given the ongoing shift online that many retailers are undertaking, there are some significant short-term costs that we believe are part of the equation necessary to generate long-term benefits,” the analysts noted. “Moreover, we believe that not making these moves is a recipe for a steady decline in competitiveness.”
Walmart is still well behind Amazon when it comes to online sales, but the discount retailer is better positioned to gain on Amazon online than Amazon is to catching to Walmart in the brick-and-mortar space, so Walmart will still be the world’s most powerful retailer. And brick-and-mortar, Moody’s said, when aligned with an e-commerce game plan, is poised for success.
“While we believe Amazon will continue to dominate online for the foreseeable future, we believe that Walmart will continue to dominate overall retail and become a significant online player,” Moody’s said.