It’s projected that Walmart will experience a loss of more than $1 billion for its e-commerce division. Though the giant retailer has made moves to compete with Amazon, its efforts have floundered, leading to huge losses.
Walmart has invested billions in its domestic e-commerce division, beginning with its acquisition of Jet.com. The retailer also made other purchases, including Modcloth and Bonobos, all the while creating its own brands. Walmart also appointed Marc Lore as President and CEO of its U.S. e-commerce operations.
Lore’s managed to increase Walmart’s stock by 53 percent since leading the online division. And while Walmart’s online grocery enterprise grew its e-commerce revenue by 40 percent in 2018, it’s failed to garner a similar share of profit in sales of other merchandise it offers. While it may appear to some that Walmart has worked its way into a more favorable competitive position, the huge losses might prevent it from taking more gambles.
It’s reported that Lore wants to increase its warehouse network to fulfill online orders, but CEO Doug McMillon isn’t on board with the move. Walmart only has 20 or so fulfillment centers at this time. That might make it hard to compete with Amazon, who has 110 fulfillment centers located across the U.S. It would take hundreds of millions more dollars to build more warehouses as well as more time that Walmart may not commit to.
That kind of long-term investment is something that Amazon is accustomed to making. Amazon’s Chief Financial Officer, Brian Olsavsky, says Amazon plans to invest approximately $800 million more to facilitate its expanded one-day shipping commitments.
Walmart does plan to offer its own one-day shipping platform, NextDay. The new service will be offered in selected metropolitan areas in phases throughout this year. More than 200,000 of its items will be available to ship to consumers within 24 hours. The company says NextDay items will ship from a singular warehouse within a short distance from the areas it’ll ship to. The company hopes to see more profit from the measures, which will save on shipping expenses.
Walmart also plans to recover some of its losses by selling one of its acquisitions, but analysts say the retailer probably won’t get what it paid for the acquisition. Sources emphasize before Walmart can turn a profit on its online operations, it’ll have to invest even more money and lose more money in the short-term to increase profits in the long-term. And, only then can it begin to rival a mega-retailer like Amazon.
Currently, Amazon dominates almost 38 percent of online retail sales in the U.S. Walmart only garners 4.7 percent.