Walmart continues to close the gap with Amazon and make its inventory more attractive

Buying stock in a grocer doesn't make much sense. It is a dull, low margin company that will not yield high returns to shareholders.

Nor, you might think, of large box retailers. But since the rise of e-commerce, some of the world's largest physical chains are trying to reinvent themselves with both a strong physical and online presence. To create more value for customers, and to deal effectively with the juggernaut of online retailers, any truly competitive e-tail component must currently provide access to consumer staples such as groceries.

The world's largest retailer, Walmart (NYSE :), is at the forefront of this race as it seeks to copy the e-commerce colossus Amazon (NASDAQ 🙂 and become a force in technology and media, reaching younger customers

Walmart 1-Year Review.

Yesterday, the Bentonville, Arkansas-based retailer launched a new subscription program called Walmart + that offers unlimited free in-store delivery, including groceries. The program costs $ 98 per year, cheaper than Amazon's $ 119 annual Prime membership. The service, which includes same-day delivery options, will help it maintain its dominance in the supermarket industry.

Through this membership program, Walmart tries to entice millions of new customers who use e-commerce channels to shop during the pandemic. Walmart has a clear advantage in strengthening its market position, thanks to its low-priced food and a huge network of 4,700 brick-and-mortar stores.

According to Bloomberg, citing a study by Credit Suisse analysts and researcher Numerator, 5 million customers were able to join Walmart + from the start. The potential audience for the service could be as high as 20 million, the report said. Amazon & # 39; s Prime program, on the other hand, has more than 118 million members in the US, according to Consumer Intelligence Research Partners.

New Growth Areas

With the launch of an annual subscription, Walmart has also entered new areas of the digital economy. In 2018, it partnered with, and acquired a stake in, Israeli video production company Eko, which has developed things like interactive toy catalogs for Walmart.

More recently, it partnered with Microsoft (NASDAQ 🙂 to acquire the US operations of TikTok, a Chinese music video app with more than 100 million US followers. While the retailer's joint bid failed after Oracle (NYSE 🙂 emerged as a potential successful bidder if the deal is approved by both the US and Chinese governments, Walmart remains interested in making a TikTok investment along with a consortium of other investors.

A possible partnership with TikTok could spur growth in Walmart & # 39; s third-party marketplace and ad companies, both of which deliver greater profit margins than the sale of Coke and Cheerios.

"TikTok would give Walmart access to a large, young and loyal group of users coveted by ad agencies and their blue chip customers who may be shifting some of their marketing budgets from Google (NASDAQ :), Facebook (NASDAQ 🙂 and Amazon to Walmart's internal media division, ”according to a Bloomberg analysis.

This digital transformation comes at a time when the retailer is in good financial shape. The company's e-commerce business has nearly doubled in the United States, with sales nearly doubling from a year ago. Year-on-year comparable store sales in the US, in stores or digital channels with a minimum of 12 months of operation, increased 9.3% in the quarter ended July 31.

It marks the second consecutive quarter of strong growth, proving that the world's largest retailer is gaining market share in some categories as many retailers close or go out of business amid the battle with the coronavirus.

Bottom Line

For some investors, Walmart stock has become expensive. After the impressive rally of the past six months, it is trading at a price-earnings multiplication of about 27 months.

In our view, that concern ignores the fact that the retailer is not the same company as it was five years ago. With its ecommerce momentum and strong core physical businesses, we believe Walmart stock has more room to run, especially when it is constantly trying new things to attract young customers and make its online experience more satisfying for customers.

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