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Can Walmart's Solid Expansion in Online Grocery Boost Stock?

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Wal-Mart Stores, Inc. (WMT - Free Report) has been taking numerous initiatives to augment its online presence and fend off competition from the e-commerce giant Amazon (AMZN - Free Report) . Among its various strategies, it is worth noting that Walmart has been proactive in expanding in the fast-growing online grocery space. Notably, this business is likely to account for nearly 20% of total grocery sales by 2025.

Progressing on these lines, the supermarket giant recently extended its alliance with last mile logistics entity, Deliv, to support same-day delivery for groceries in San Jose and much of Silicon Valley — as reported by various sources. Customers at Walmart can buy online and schedule deliveries anytime between 8 am-8 pm on all days, which will be concluded by a Deliv driver.

Notably, Walmart’s splendid e-commerce endeavors (including expansion in the online grocery space) have been fueling results for quite some time now. This, in turn has helped this Zacks Rank #2 (Buy) stock surge 44.4% over a year, outperforming the industry’s growth of 33.9%. So, we believe that strategies like the aforementioned one is most likely to drive the stock higher.





 

Walmart’s Expansion in Online Grocery Likely to be Fruitful

Walmart, which competes with Amazon Fresh, has been testing same-day deliveries with Deliv for quite some time now. Evidently, both companies partnered with smart lock door maker, August Homes this September to test in-home and direct-to-fridge delivery. Per this deal that was being tested in Silicon Valley, users of August Home devices like door bells or security cameras could opt for deliveries by Deliv and monitor the whole delivery process on their smart phones.

Other than this, Deliv also served as one of Walmart’s partners when the latter was testing last-mile grocery deliveries with Uber and Lyft. These initiatives highlight the solid ties between Walmart and the last-mile logistics company, with both focusing on enriching consumers’ convenience. Notably, Deliv has a strong presence in the United States, with operations spread over cities like Atlanta, Austin, Boston, Chicago, Miami, Las Vegas, and Washington, DC among others.

Apart from entering into deals with third-party delivery services, Walmart also acquired delivery start-up company, Parcel Inc. to extend same-day deliveries in New York. Given consumers’ rising preference for online shopping, we believe that the extended partnership with Deliv is likely to strengthen Walmart’s online grocery category.

Online grocery sales played a vital role in boosting Walmart’s e-commerce sales in the third quarter of fiscal 2018. Incidentally, U.S. comps (excluding fuel) rose 2.7% in the quarter, largely driven by 1.5% improvement in comp traffic. Moreover, e-commerce sales positively impacted comp sales at Walmart U.S. by 80 bps. Walmart’s U.S. e-commerce sales increased 50%, owing to Walmart.com’s performance. Notably, this includes significant contributions from Walmart’s online grocery service, which has now expanded to over 1,100 locations and is expected to have 1,000 additions next year.

Apart from this, management stated that its food categories performed exceptionally well and recorded the highest comps in about six years. Walmart’s international sales also delivered growth, mainly fueled by strength in food and staples categories.

E-Commerce Initiatives Remain a Growth Driver

Amazon’s rising dominance and expansion in the grocery space has made most retailers trepidatious, thus compelling them to take efforts to combat the intense competition. In order to keep pace with the evolving consumer demand and stand strong amid a tough environment, Walmart’s has been taking several e-commerce initiatives, including buyouts, alliances, and improved delivery and payment systems.

Evidently, Walmart’s buyouts of ShoeBuy, Moosejaw, ModCloth and Jet.com underscore its quest to build an impressive digital brand portfolio. The company’s Walmart Pay mobile payment system, and Mobile Express Returns program further highlight its focus on accelerating online business and making shopping easier and faster.

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