Walmart and Target Poised to Capture Bigger Online Sales This Festive Season. But at What Cost?
Mega-retailers such as Target and Walmart have been directing a lot of their money into their online business so as to fight off rivals such as Amazon, as the companies gear to have massive e-commerce sales in the United States this festive season.
Despite the fact that the reported sales growth each quarter for Amazon factors in data derived from its other businesses, such as the Amazon Web Services, Amazon is poised to take up at least 5 percent of expected retail sales in the United States this year as per information released by eMarketer.
Moreover, the data marketing firm has revealed that Amazon will finalize 2018 by capturing at least 48 percent of e-commerce sales in the United States, which translates to about $252 billion, in comparison to the 43.1 percent the company had in 2017.
Indeed, there are some people who predict Amazon will get a pass from investors regarding investments it used to increase its sales. For example, the purchasing of Whole Foods.
In fact, analysts have said that investors are not as concerned about Amazon turning a profit, and would rather see top-line growth.
Investors Putting up Stricter Directives
In response, traditional retailers such as Target and Walmart are not going down without a fight. However, they continue to receive stern warnings from investors regarding initiatives that touch on earnings.
Indeed, Target is a perfect example of the current predicament, when its shares catapulted on Tuesday last week by over 10 percent after their third-quarter earnings failed to meet the expectations that had been predicted by Wall Street. This was due to increased labor costs as well as an increase in transportation, as a result of e-commerce sales increasing exponentially. Indeed, Target was on track to record negatives in market value ranging to $4.4 billion.
Nevertheless, Target revealed that its third-quarter digital sales increased by 49 percent, the best the company has had since it began revealing this metric.
It further revealed that digital now constitutes about 6 percent of its overall sales; which is an increase of 4.2 percent about a year ago. Nevertheless, its stores constitute the remainder of the sales.
Profit Margins to Be Under Pressure During Holidays
That being said, the company has not revealed its projections for e-commerce sales in its fourth quarter, but it has revealed that profit margins might be put under high pressure during the holidays, as a result of increased expenses in its supply-chain.
Nevertheless, Walmart has also not revealed the total percentage of its sales that originating from its websites, but did mention that during its most recent quarter that digital sales increased by 43 percent.
Moreover, Walmart is expecting to finalize its year with e-commerce sales growth that will total to at least 40 percent.
Additionally, some of that growth can be credited to the company’s recent string of purchases including Jet.com, as well as smaller online brands such as Moosejaw, Modcloth, and Bonobos.
Indeed, investors would like to see the return on these deals and ensure the momentum keeps going.
According to Joe Feldman, Telsey Advisory Group analyst, some individuals are worried that the current situation might be as good as it gets for Walmart.
Increase in Other Walmart Expenses
That being said, as Walmart’s e-commerce sales continue to rise, other expenses, as well as those on deliveries, will continue to rise and thus weigh on margins resulting in increased company expenditure and denting profits.
The only way this can change is if Walmart can find alternatives such as increasing private labels
Moreover, the purchase of Indian company Flipkart has also harmed profit margins for the company in the near term.
Indeed, last week when Walmart reported its third-quarter earnings, its stock dropped by 2 percent. This resulted in the company shaving roughly $5.83 billion in terms of market value, as the company’s estimated share value for the whole year in earnings is poised to be somewhere between $4.75 and $4.85 for every share.
Nevertheless, as for its growth, Walmart is expected to surpass Apple as the world’s third biggest retailer in the United States when dealing with e-commerce sales by the end of 2018.
Moreover, eMarketer is confident that the company will capture in the United States at least 4 percent of all digital retail spending, which would total to about $20.91 billion
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