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Walmart vs. Amazon: Who Wins the Race for Next-Day Delivery?

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The competition between Walmart Inc. (WMT - Free Report) and Amazon.com, Inc. (AMZN - Free Report) to seize a bigger share in U.S. e-commerce sales is intensifying. Walmart, the largest brick-and-mortar retailer globally, is making a swift progress to boost its online presence despite Amazon’s dominance on that front in the United States. 

Can Walmart’s Next-Day Delivery Offer Beat Amazon’s?

Walmart, a Zacks Rank #2 (Buy) player, came up with a new online retail service earlier this week that provides shoppers with the option of having their online orders delivered the very next day. This announcement follows Amazon’s plans in April to introduce a free one-day shipping for Amazon Prime members. Since the offer is aimed at Amazon’s Prime membership services, it’s imperative to first take a look at what Walmart has on offer.

Walmart’s next-day delivery service is limited to Pheonix, Las Vegas and Southern California, before reaching two-thirds of the country toward 2019-end.

Secondly, the service doesn’t involve a membership fee. Walmart is offering customers to select their purchase from a wide range of about 220,000 items that are most frequently bought. The only criterion for free shipping is that the total purchase has to be more than $35. The company plans to make this process more profitable by widening the range of products it offers for next-day delivery in a bid to raise the number of orders.

Walmart’s wider brick-and-mortar presence in the United States is extremely advantageous to implement its next-day delivery service. Roughly 95% Americans live within a 30-minute drive from a Walmart store. This not only facilitates Walmart’s faster delivery of products but also introduces options, such as click-and-collect wherein a customer can choose what to buy on Walmart’s website and simply gather it from the store.

Lastly, a recent UBS report states that it would cost Walmart about $215 million in incremental investments to compete against Amazon’s next-day shipping offer, based on its e-commerce revenues. The investment bank noted that it would be “quite manageable” for Walmart to fish out the amount.

The next-day delivery strategy could help Walmart secure a wider footing in U.S. online retail, albeit nowhere close to Amazon’s presence in the same.

Amazon Still Has an Upper Hand

Walmart has targeted Amazon Prime membership’s inclusive one-day free delivery service that  costs members $119 annually and has no minimum purchase threshold. The membership has services like television and audio streaming along with the free shipping, which ultimately makes the deal more lucrative.

In addition, since Amazon’s core competency is online retail, the company’s efficiency and customer service in that arena is unprecedented. Half the American population heads to Amazon to look for a product and from the rest, 90% of the U.S. populace turns to Amazon when it fails to find a product anywhere else. Amazon’s one-day delivery facility is available across the country as well, which makes it easier for most U.S. customers to avail of it.

Amazon’s efficiency in innovation and customer service also compensates its lack of as many physical stores as Walmart. Amazon has 45,000 robots to handle the flow of merchandise in its warehouses so efficiently that it only takes a human 60 seconds to process an order.

Amazon, which carries a Zacks Rank #3 (Hold), is also spending $800 million in second-quarter 2019 on enhancing its warehouses and delivery infrastructures, which is bound to give it a more competitive edge.

Moreover, Walmart’s aggressive push to emerge as an omni-channel retailer could take time to surpass Amazon’s massive 47% market share of U.S. online retail sales. Per an eMarketer report, Amazon will be responsible for roughly half of U.S. online retail sales in 2019, which Walmart will account for 4.6% of the same.

But Amazon’s reach and efficiency in online retail could be highly beneficial to the company as growth in U.S. online shopping is rapidly outpacing the rest of retail. According to FTI Consulting, U.S. online retail sales are expected to witness a compounded annual growth rate of 12% through 2020. Online sales in the United States are forecast to exceed $600 billion by 2020 and outpace $1 trillion in 2027. Given this projection, Amazon is likely to have a bigger share of the U.S. online retail market.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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