This Is Bad News for WMT Stock
The shift to online shopping started years ago and for shareholders of many of the so-called brick-and-mortar retailers, these are tough times. You can blame Amazon.com, Inc. (NASDAQ:AMZN) for the malaise. Amazon.com has replaced Wal-Mart Stores, Inc. (NYSE:WMT) as the “Death Star” of the retail sector and it will get worse… This should keep WMT stockholders up at night.
Major retailers like Nordstrom, Inc. (NYSE:JWN), Macy’s, Inc. (NYSE:M), Kohl’s Corporation (NYSE:KSS), and J C Penney Company Inc (NYSE:JCP) have joined Wal-Mart as it stands in the destructive path of Amazon.
These retailers may not tell you upfront, but the threat from Amazon is real and will wreak havoc on the retail sector.
Don’t take the road Blockbuster took years ago when the renter or videos failed to react to the emergence of a then startup called Netflix, Inc. (NASDAQ:NFLX). We all know what happened to Blockbuster…
This Move by Wal-Mart Indicates Amazon Success
Wal-Mart is finally recognizing the threat of Amazon and is working hard to adapt what it has learned from Amazon—the power of online sales.
WMT stock has seen its market cap erode to $205 billion, which is well below AMZN stock’s $335-billion value.
It’s a tale of two opposites. While Wal-Mart is struggling to find any growth at all, Amazon is charging ahead.
The following chart shows the price divergence between Amazon and Wal-Mart:
Chart courtesy of www.StockCharts.com
Wal-Mart is predicted to see its revenue contract 0.1% in full-year 2017 ending in January and rise a mere 2.6% in full-year 2018. By comparison, Amazon is estimated to expand its revenue by 25.3% this year followed by 20.6% in 2017.
Whether Wal-Mart can reverse its course will depend in part on its ability to grow its online segment and battle Amazon. Online is the battleground for the retail sector.
Taking a page from Amazon’s playbook for success in the new realm of retailing, Wal-Mart announced it would be offering unlimited two-day delivery service with “ShippingPass” for an annual fee of $49.00. The service will be available for the majority of products and is strikingly similar to Amazon’s “Prime” membership (but with fewer extras).
Wal-Mart will build a network of eight inventory and shipping facilities to ramp up its new strategy to try to recapture some lost business from Amazon and other retailers. The move could work due to the massive size of Wal-Mart, but it could also very well fail. Only time will tell. Give it a year or so to see if Wal-Mart’s strategy takes hold.
For the time being, Amazon will rule the retail sector as the best of breed in the online retail space.
Until Wal-Mart or other retailers can show they can compete with Amazon in the online retail world, I wouldn’t recommend buying their stocks.