In a bid to compete in the e-commerce and online grocery businesses, Wal-Mart Stores IncWMT is reportedly expanding its online grocery service to eight more locations. Not only that, the world's biggest retailer is launching a free pickup service for online grocery orders in select U.S. cities.
Wal-Mart's online grocery service will now be available in Atlanta, GA; Charlotte and Fayetteville, NC; Nashville, TN; Tucson, AZ; Colorado Springs, CO; and Salt Lake City and Ogden, UT. The company now offers online grocery service at 13 locations. It further plans to add more markets in the coming weeks.
Moreover, Wal-Mart is not charging any subscription fee for the service, which means grocery orders can now be picked up for free. Customers can also take advantage of same-day pickup if they place orders before 10 a.m.
The move comes as rivals attempt to tap demand for pickup and delivery services. Bentonville, AR-based Wal-Mart is keen on accelerating growth of its online business and is geared to compete with other players in the e-commerce and online grocery businesses like Amazon.com, Inc. AMZN and its Prime Fresh service, Target Corp. TGT and its recent partnership with Instacart, and Google, Inc. GOOG and its Google Express delivery service.
Online grocery shopping and delivery is a booming industry, worth $10.9 billion, and is expected to grow 9.6% annually through 2019, according to a report by market research firm IbisWorld. Wal-Mart is thus aggressively investing in its e-commerce business and making efforts to improve customer service.
In Jul 2015, Wal-Mart acquired the remaining shares to take full ownership of the Chinese Internet retailer Yihaodian in China to further accelerate its e-commerce business in the country. Wal-Mart had acquired 51% interest in Yihaodian in Aug 2012.
The company has enhanced and improved both its technology and physical distribution network for e-commerce. The technology platform Pangaea is consistently improving customer experience and conversion for Walmart.com and leading to solid sales growth. A U.S. grocery home shopping business has also been created that is been well accepted by customers. Wal-Mart has also developed e-commerce at Sam's Club and in key markets around the world such as Brazil and China.
Though we are positive on the company's efforts to grow its online business, the current scenario is alarming for its investors.
Wal-Mart anticipates huge expenses in the near term, as it has already pledged to spend $1 billion to raise employees' wages and give them extra training. Wal-Mart is also witnessing lower margins at Wal-Mart U.S. and expects pharmacy headwinds in this business to continue in the remainder of the fiscal year 2016. Higher labor costs, pharmacy headwinds along with the company's efforts to overhaul its stores and invest in its online operations continue to weigh on its earnings.
Wal-Mart currently holds a Zacks Rank #5 (Strong Sell).
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