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Walmart and Target Ratchet Up Online Grocery Initiatives

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Walmart and Target set sights on the online grocery segment

Despite missing its e-commerce growth expectations in fiscal 3Q16, Walmart (WMT) is bullish on prospects for expanding its online grocery initiatives. Walmart now offers click-and-collect for groceries in 25 markets, according to Greg Foran, president and CEO (chief executive officer) of Walmart US.

In contrast, rival AmazonFresh (AMZN) has online grocery services in selected metropolitan areas in the United States, including Seattle, New York, and San Francisco. In September, Target (TGT) announced it was partnering with grocery delivery service Instacart to test a pilot on-demand grocery program in Minneapolis. Target also plans to deliver other selected merchandise besides groceries through the service.

Amazon (AMZN) and Target (TGT) together constitute 12.3% of the portfolio holdings of the Consumer Discretionary Select Sector SPDR ETF (XLY) and 9.5% of the Vanguard Consumer Discretionary ETF (VCR).

Walmart’s CEO Doug McMillan made the following claims:

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  • Online grocery shoppers tend to spend almost 50% more on groceries than customers in brick-and-mortar stores.
  • About 210 million visitors are expected to use Walmart’s app (application) in November and December of 2015. That’s an 11.7x increase from the 18 million three years ago.
  • A fifth state-of-the-art e-commerce fulfillment center opened in Atlanta, Georgia, during fiscal 3Q16, gearing up the retailer for higher sales just in time for the holidays.

Sam’s Club steps up the pace in e-commerce

Sam’s Club was a strong performer in e-commerce in fiscal 3Q16, with the growth in segment sales powered by its e-commerce channel. E-commerce had a 0.6% impact on same-store sales. Strong drivers were the company’s introduction of Club Pickup, which includes drive-through and curbside options, and the introduction of mobile check-in and geo-fencing technology. The introduction of Club Pickup to all Sam’s Clubs resulted in a 50% increase in sales in the quarter.[1. according to comments by Rosalind Brewer, president and CEO of Sam’s Club]

Outlook

Despite the disappointing fiscal 3Q16 performance, Walmart is still expecting a mid-to-high teens growth rate in e-commerce sales in fiscal 2016. It’s also investing heavily in digital and enhancing omnichannel capabilities. Walmart expects to spend $0.9 billion and $1.1 billion in e-commerce and digital investments, respectively, in fiscal 2016 and fiscal 2017.

According to Cathy Smith, Target’s CFO (chief financial officer), Target is looking at a growth rate of 20% in Web sales in the fourth quarter. That’s half the long-term rate of 40% projected in March.

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