Amazon and Walmart are like the Hatfields and McCoys, locked in a bitter feud to win the war for retail. Walmart has countered Amazon’s explosive growth by bolstering its own online offerings and integrating digital with its vast network of offline stores. So how is Walmart doing? On February 20, Walmart issued a bulletin from the front lines, announcing earnings for the fourth quarter of fiscal 2018 as well as the full fiscal year.

And the report revealed just how difficult a fight Walmart faces. Here are a few highlights:

eCommerce Grows – but at a Slower Pace

Walmart has bolstered its eCommerce offerings considerably in recent years by making some bold moves. For instance, the company acquired in 2016, expanded features such as free two-day shipping, and integrated online with offline by adding grocery pick-up locations, where shoppers can order online and then pick up their groceries at drive-through lanes. The latest weapon to pay dividends for Walmart in this retail arms race appears to be their cloud initiative, which took nearly five years and cost millions of dollars to build.

The strategy continues to boost Walmart’s online presence: Walmart reported U.S. eCommerce sales of 23 percent for the quarter and full-year sales of 44 percent.

But as impressive as 23 percent growth sounds, that growth rate actually represented a slowdown from the 50-percent online sales growth that Walmart reported the previous quarter. In a statement, CEO Doug McMillon said, “The majority of this slowdown was expected as we fully lapped the Jet acquisition as well as creating a healthier long-term foundation for holiday.”

He indicated that Walmart expects eCommerce to grow at a 40-percent rate for the coming fiscal year, with one of the keys to growth being the success of in-store pick-up. “Customers also love online grocery pickup,” he said. “This popular initiative has the highest net promoter scores of anything we’ve launched in the recent past.”

As 2018 unfolds, the success of in-store pick-up will be crucial. Walmart is betting that grocery shopping remains an on-the-go experience requiring the human touch, whereas Amazon is investing in cashier-less operations (Amazon GO) and delivery – the latter via its ownership of Whole Foods.

Brick-and-Mortar Operations Hold Their Own

The ultimate barometer of Walmart’s success is profitable growth. The company reported mixed results. On the one hand, earnings per share for the quarter missed analysts’ expectations. On the other hand, revenue and in-U.S. same-store sales exceeded expectations, a sign that its brick-and-mortar operations are holding their own even as other retailers struggle.

The key to Walmart’s future for brick-and-mortar stores? Most likely, mobile. Walmart has developed its own app to make it easier for customers to make shopping easier, such as picking up prescriptions at in-store pharmacies. McMillon said, “By becoming stronger at mobile and leveraging digital capabilities, we improved in-store experiences, including our pharmacy and money services areas. We enabled easy reorder online. We’re making the checkout experience easier with Scan & Go and also digitizing the returns process.”

In 2018, look for Walmart to use mobile to remove even more friction from shopping in its stores.

Private-Label Brands

Walmart also noted the importance of its private-label brands. Amazon has been steadily building its own private-label brands, operating an estimated 41 in categories ranging from fashion to electronics. Walmart is answering Amazon’s strategy by launching private brands of its own, which is helping Walmart increase its online/offline offerings and keep more of its revenue in-house. Walmart noted that the success of private-label brands is a factor in its domestic growth as well as outside the United States. McMillon indicated that the acquisitions of businesses such as Bonobos and Modcloth have played a role.

But Walmart is really just getting started with private-label brands. Its growth with private-label brands is an area to watch, not only as a factor in Walmart’s growth but also as a pressure on clothing and consumer-packaged goods brands that sell their own goods via Walmart.

A Bloody War

Walmart’s war against Amazon is a bloody, as Walmart’s recent closing of 63 Sam’s Club stores indicates. And as big and powerful as Walmart is, the company continues to experience ups and downs. Financially speaking, Walmart’s earnings report was a disappointment, triggering a flurry of mostly negative headlines minutes after Walmart published its earnings. Even still, the company’s revenue results — $136.3 billion for the fourth quarter – beat analysts’ expectations, and a projected 40-percent eCommerce growth for the coming year is nothing to scoff at.

It looks like Walmart’s strategy is winning business with consumers. Wall Street, though, has high expectations, and Walmart has a lot of work to do in order to meet those expectations.

Saul Delage

Saul Delage

VP Growth