Walmart Challenges Amazon by Going Digital

Walmart (WMT) is successfully evolving its business model to better integrate online and in-store shopping as it prepares to take on e-commerce giant Amazon (AMZN), a move that could put it on a path to even greater growth, financials Baird said in a research note.

The company’s vision of “creating an omnichannel disruption in retail” is “quickly becoming a reality,” said Baird analyst Peter Benedict. The company raised its price target on Walmart from $82 to $90.

“Comprehensive business transformations often fall short of ambitious initial aspirations, but that doesn’t appear to be the case with Walmart,” the company said after hosting investor meetings with Walmart in Australia last week.

Baird noted that Walmart’s combination of online and in-store shopping – particularly e-commerce – has enabled the company to tap into higher revenue sources such as advertising, memberships, marketplace, fulfillment services and data analytics. Collectively, these initiatives could generate approximately $9 billion in revenue.

Walmart’s most recent quarterly earnings report revealed strong financial results and growing appeal across all income levels, particularly among higher-income households. This dynamic, combined with favorable market conditions and what Baird calls “a few important developments on the fly,” appears to be strengthening Walmart’s competitive position in the retail market.

Walmart serves 150 million customers a week, and despite broader concerns about rising prices, the company hasn’t seen a major decline in consumer behavior on its platform, Baird notes. Walmart recently announced plans to “restore” prices on 7,000 items.

The retail giant’s focus on value and convenience has attracted consumers weary of inflation, especially those from lower-income households who typically shop at dollar stores. Walmart also expanded its home delivery service to cover all of its stores, meeting expectations set by e-commerce competitors. At the same time, Walmart’s growing third-party marketplace and the introduction of more premium private labels such as Bettergoods, and even the modernization of some stores, appealed to higher-earning consumers.

With these improvements, Walmart is well-positioned to challenge e-commerce giant Amazon. However, Baird analysts note that Walmart’s success in this field may depend on refining certain operational details. For example, the company suggests that tightening food delivery windows could be a key factor in attracting online customers who expect quick service from e-commerce leaders.

A retail conflict may be brewing as Walmart rolls out weekly holiday shopping deals at the same time as Amazon’s second Prime Day event takes place on October 8. The timing of the event is important because it forces other retailers (like Target (TGT) and Best Buy (BBY)) to offer deals to stay relevant in the market.

However, this apparent competition may evolve into a new retail paradigm in which multiple giants can thrive simultaneously.

“The old view was that Amazon and Walmart couldn’t win at the same time,” Baird said. “Now the view is that they can both share it.”

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