Walmart Pushing to Catch Amazon, but Will the Investments Pay Off?

Walmart has grown to be the largest retailer in the United States (and, essentially, the world) mostly on smart logistics.  For one, their warehouse-sized stores house thousands of products that make shopping a breeze for busy families. They also have one of the biggest trucking companies in America—with drivers making $87,500 to start—as well as a massive network of warehouses across the nation. 

But in all the ways Walmart has succeeded in the traditional retail world, the company is struggling to keep pace with the new digital retail world.  Indeed, despite an ability to service thousands of customers every day in each of their brick-and-mortar stores, their lack of fulfillment centers to accommodate e-commerce orders is dragging them behind their nearest competitor.

Of course, Walmart’s nearest competitor on this front also happens to be the e-commerce behemoth, Amazon.  Amazon has 110 fulfillment centers across the United States; Walmart has only 20.  And while Walmart wants to make the push to bolster their online business, building more of these structures requires a major financial investment. For example, Amazon’s newest fulfillment center, located just outside New Haven, CT, carries a price tag of approximately $250 million. 

Now, logistics, as a whole, is not cheap.  The push to move to one-day delivery for Amazon Prime members will probably cost the company upwards of $800 million by the end of the year.  But Amazon also has alternate revenue sources from things like Amazon Web Services, and a web-based advertising business, to help shore up these other investments. 

Walmart, on the other hand, does not really have a cash flow from which to extract investments anytime they want to.  

In the meantime, then, Walmart has to continue to focus on expanding its e-commerce offerings.  The $3.3 billion acquisition of popular online shopping platform Jet.com, a few years ago, was just the beginning.  This buy helped bump Walmart’s stock price 53 percent in the last three years, which is almost fifty percent better than the whole of the S&P 500 Index over the same time period. 

Even though Walmart has been growing—sales were up 40 percent last year—they still have a long way to go if they want to compete with Amazon; that is to say, if catching up to them is at all possible.