Walmart’s online struggles show how far it has to go in its war with Amazon

  • Walmart‘s online growth slowed in the most recent quarter, which disappointed investors.
  • CEO Doug McMillon called most of the slowdown “planned” due to the anniversary of the company’s acquisition of Jet.com.
  • But he blamed some of the slowdown on “operational challenges,” like products being out of stock over the holiday season.
  • It shows how Walmart still has a ways to go to compete with the well-oiled machine Amazon has built.

Walmart reported a spot of bad news in its most recent quarterly earnings call on Tuesday.

The world’s largest retailer posted a drastic slowdown in its online growth for the quarter: 23% compared to the 50% it had reported in the previous quarter.

Most of this, CEO Doug McMillon said in the earnings call, was “planned and expected.” But a smaller portion of the slowdown was due to “operational challenges,” he said.

Put simply, Walmart.com ran out of some things during the holiday season. The company stocked up on holiday gifts like toys, TVs, and electronics, but this harmed the in-stock levels of some other items that are stocked in warehouses and in demand year-round.

“We’re learning how to deal with higher volumes,” McMillon said.

McMillon has sworn to fix the problem, but while Walmart is still learning how to master online, Amazon is running away with it. Amazon had a record-setting holiday season, and analysts estimate that it took nearly half of all online sales.

Amazon has mastered dealing with high volume at all times of the season, and it knows how to anticipate demand. It also doesn’t need to make room for certain items since it has an enormous network of fulfillment centers spread across the US and, increasingly, the globe.

Walmart can’t afford to falter in its war with Amazon. It’s already starting from a few paces behind.

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Rafi Letzter/Tech Insider

Part of the issue is in Walmart’s focus on cutting costs while trying to grow online market share. Amazon sells some smaller items at a loss to try and foster loyalty from customers. Walmart doesn’t have a loyalty program like Amazon Prime, which keeps customers in the Amazon ecosystem. Walmart instead has to rely on the strength of its offering and low prices to keep customers coming back.

Walmart’s expenses were much higher last year as it instituted programs, like free shipping and mobile returns, to capture more online customers.

Executives have already said at Walmart’s annual investors’ conference that controlling costs will be a top priority for this year. According to Reuters, Walmart has begun asking suppliers for higher-priced goods to sell online to get the average cost of carts up.

Walmart ended the fiscal year with around 40% in online growth, and it’s forecasting similar growth for the next year.

Analysts are split on whether that will happen, with RBC analyst Scot Ciccarelli telling investors in a note, “It is difficult to ignore the magnitude of the slowdown in e-commerce.”

On the other side, Jefferies analyst Daniel Binder told investors that Walmart’s “management is still making good long-term decisions … that allow it to offer more options to customers, reduce friction and build a bigger e-commerce business.”

Walmart will be doing a high-wire juggling act as it heads into the rest of the year, and there’s still a lot to be done to catch up to Amazon.