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Wal-Mart Tests Drones at its Warehouse, to Roll Out Soon

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Shares of Wal-Mart Stores Inc . WMT closed 0.64% higher as the Bentonville, AR-based retailer announced that it is planning to roll out drones in the next six to nine months in order to manage warehouse inventories in the U.S., as per Reuters.

After conducting testing recently at a distribution center, it was reportedly found that a drone takes 30 pictures per second and can check inventory in about a day or less, instead of a month when done manually. A drone can fly around a distribution center, capture images in real time and flag the misplaced items.

The retail giant has been testing drone technology indoors for several months, as it is illegal to commercially use drones outdoors under current U.S. law. The Federal Aviation Administration ('FAA') has banned commercial drone flights but has granted several thousand waivers. It has granted Amazon.com AMZN approval to fly drones for research. Amazon was granted permission to use drones outdoors in Apr 2015, after working on its drone delivery service since late 2013.

Following the footsteps of Amazon, Wal-Mart reportedly applied to the FAA last year for permission to test drones outdoors in the U.S. to check if these can be efficiently used for delivering products to Wal-Mart facilities as well as to consumer homes.

Wal-Mart has been trying to keep pace with Amazon in the delivery space. Not only did it start using drone technology in mid-May but also announced that its ShippingPass e-commerce subscription program will begin offering delivery in two days rather than three. The retailer is also cutting the price of the program by $1 to $49 a year. The program is competing with Amazon's Prime service, which costs $99 annually.

In an effort to compete with Amazon and to improve customer service, Wal-Mart is aggressively investing in its e-commerce business, which is increasing its expense burden. Wal-Mart has also pledged to invest $2.7 billion on raising employees' wages and give them extra training in fiscal 2017. Under the initiative, Wal-Mart had increased its minimum wage to $9 an hour in April, and to $10 per hour in Feb 2016. Higher labor costs along with the company's efforts to overhaul its stores and invest in its online operations will weigh on its earnings.

Wal-Mart has also been posting disappointing results due to sluggish U.S. sales. It is also facing intense competition on all fronts, ranging from dollar stores to the traditional grocery store chains and online business.

Wal-Mart projects slower growth in new stores. Price competition is one of the reasons for the slower growth. Wal-Mart is finding it difficult to compete with local grocers in some markets, which compelled it to scale back expansion plans for smaller stores. Its international operations are also under pressure with a stronger dollar eating into sales.

Wal-Mart is undertaking a turnaround plan in order to improve its sales, business operations and customer service. The company is also striving to expand its grocery pickup and delivery service and thus believes that the use of drones would be of great help. Further, the new technology would connect Wal-Mart's vast network of stores, distribution centers, fulfillment centers and transportation fleet and help to make its present distribution system more efficient.

Wal-Mart currently holds a Zacks Rank #2 (Buy).

Stocks to Consider

Investors interested in the same space may also consider The Kroger Co. KR and The Children's Place, Inc. PLCE . Both of them hold a Zacks Rank #2.

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AMAZON.COM INC (AMZN): Free Stock Analysis Report

CHILDRENS PLACE (PLCE): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

KROGER CO (KR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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