Here’s Why Wal-Mart Is Continuing To Build Its E-Commerce Empire
After acquiring Jet.com for around $3 billion last year, Wal-Mart (NYSE:WMT) appears to be on an acquisition spree in the e-commerce space. The company recently acquired ModCloth, an online fashion website known for its vintage-inspired patterned dresses. This comes after Wal-Mart’s acquisition of online footwear retailer ShoeBuy.com and outdoor gear company Moosejaw. The company acquired Jet to give its e-commerce business a boost, especially with the e-commerce expertise of Jet’s team. Wal-Mart now appears to be augmenting its online presence by acquiring smaller e-commerce companies to take on Amazon. ModCloth’s customer base is primarily millennial women, and we believe Wal-Mart is looking to tap into this section of the population to grow its online user base. As e-commerce grows at faster pace compared to the overall retail market, this focus on online growth can become a key revenue driver for Wal-Mart in future.
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Focus On Efficiency And Future Growth
While Wal-Mart is the largest retailer in the U.S., it is gradually losing market share in the country. Its market share fell marginally to 13% in 2016 from 13.2% in 2015. Amazon, on the other hand, gained market share in the same period and accounted for an estimated 3.3% of the total retail sales in the U.S. in 2016, compared to 2.7% in 2015. While Wal-Mart still commands a larger market share compared to Amazon, its comparatively limited e-commerce presence could be a hindrance to future growth. According to eMarketer, in 2015, Amazon’s e-commerce revenues were around $83 billion, while the corresponding figure for Wal-Mart was only $12.5 billion. Currently around 3% of Wal-Mart’s business is via e commerce, though the company does have strong growth potential in the segment. As e-commerce in the U.S. grows steadily, Wal-Mart is looking to tap into this growth and build a competitive edge against Amazon. E-commerce now accounts for more than 8% of total retail sales in North America, and is likely to reach 10% by 2019. While total retail sales in North America are expected to grow at around 3% in the next two years, e-commerce sales are likely to grow by more than 10%. Wal-Mart can tap into this growth with its enhanced focus on the segment. Further, a strong e-commerce presence can also make its business more efficient and increase its revenues per square foot. We expect Wal-Mart’s U.S. revenue per square foot to increase gradually from $446 in 2017 to $479 by the end of our forecast period.
Wal-Mart is looking to broaden its customer base through its strategic acquisitions and targeting younger customers, who are more likely to choose Amazon as the preferred online retail destination. Given this threat from Amazon and other e-commerce players, Wal-Mart’s strategy to focus on inorganic e-commerce growth should be beneficial for the company going forward.
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