Walmart’s Digital Sales: What’s behind Robust Growth?

Walmart’s (WMT) digital sales growth has been impressive despite the heightened competitive activity.

Walmart’s digital sales growth accelerated

During the third quarter, Walmart’s digital sales in the US increased 41% on YoY (year-over-year) basis. The reported growth rate showed a sequential acceleration.

Notably, the company’s e-commerce sales rose 37% in the first half of fiscal 2020. The digital sales growth accelerated despite tough YoY comparisons. Walmart posted a 43% growth in its e-commerce business during the third quarter of the previous year.

Walmart’s Digital Sales: What’s behind Robust Growth?

Notably, Walmart’s digital sales have been a key growth driver for its US business. During the third quarter, e-commerce sales contributed 1.7% to the company’s US comparable sales growth rate.

What drives Walmart’s digital sales?

Walmart’s strong e-commerce sales growth is due to the expansion of its grocery pickup and delivery services. Fresh offerings through supply-chain reinvention also supported its sales. Adding new brands and value pricing has driven Walmart’s digital sales.

Walmart stated that it has significantly expanded its convenient grocery pickup and delivery services. The grocery pickup and delivery services grew to more than 2,700 and 1,100 stores, respectively, at the end of the second quarter. Meanwhile, the company’s management stated that it remains on track to offer grocery pickup services from more than 3,100 stores by the end of this year. Grocery delivery services will likely expand to 1,600 stores.

Walmart added nearly 2,000 new brands to its website in the last one and a half years. Launching new brands drives the company’s traffic and ticket size. Walmart’s value pricing also supports growth. 

Outlook

We think that Walmart’s digital sales will continue to benefit from its expanding grocery pickup and delivery services. The company launched its “Delivery Unlimited” and “InHome Delivery” services, which should support growth.

Walmart’s Delivery Unlimited grocery delivery membership program is in 1,400 stores. The company charges a yearly fee of $98 or a monthly fee of $12.95 for unlimited grocery delivery. Also, the company launched InHome Delivery or delivery directly to customers’ kitchens or garage fridges in three cities.

While Walmart’s digital initiatives will likely support its sales, management expects the e-commerce sales growth rate to decelerate in the fourth quarter. Management expects the fourth-quarter digital sales growth to be the lowest in fiscal 2020 due to the negative product mix, overlaps, and a shift in the initiative timing.

However, Walmart maintains its fiscal e-commerce sales growth outlook at 35%.

Rivals expanding rapidly

Walmart’s grocery pickup and delivery services remain popular among customers. However, competitors are expanding their grocery delivery services. Amazon (AMZN) removed the $14.99 per month fee for Amazon Fresh delivery. Also, the company is expanding its partnership with other stores to act as pickup locations. Amazon continues to invest in the delivery business to offer one-day delivery to its Prime members.

Target (TGT) has also ramped up its delivery initiatives. The company offers same-day delivery through Shipt and Drive Up services.