Walmart Has a New Ally in Shopify. Watch Out Amazon. – Barron’seCommerce
Analyst Christopher Mandeville reiterated a Buy rating and $141 price target on Walmart (ticker: WMT) on Tuesday, writing that this is just the latest move in the company’s effort to build out its third-party marketplace, a strategy that would allow it to see higher e-commerce margins and compete more readily with Amazon.com (AMZN).
He notes that online sales jumped some 75% in the first quarter of the company’s fiscal year, and third-party sellers saw an even higher growth rate. Moreover, while the deal might seem small at first glance—the roughly 1,200 merchants that could come online as a result of the partnership pales in comparison with the one million that Walmart expects to add overall this year—it still makes strategic sense. It should expand Walmart’s general merchandise assortment, which could lead to higher traffic and average basket size.
“Beyond fiscal 2021, we see plenty of opportunity for Walmart to continue to build out merchandise assortment available in [its] marketplace through additional Shopify seller integration…however, timing and level of further integration is…unknown,” Mandeville writes.
The deal looks good on Shopify’s (SHOP) end, as well, he argues, as the company has been looking to beef up the number of channels where its merchants can sell goods, and “the partnership has the potential to evolve into a more meaningful one over time.” He hypothesizes that the company could use Walmart’s fulfillment network, which “would likely help both Shopify and Walmart better compete against Amazon’s Fullfillment by Amazon (FBA) offering.”
This is just the latest decision by Walmart to broaden its product offerings through partnerships, and comes of the heels of its partnership with clothing reseller ThredUp. Both deals bring more products to Walmart’s online channels, boosting traffic and putting it even more squarely in competition with Amazon.
Walmart appears to be switching tactics, moving away from outright acquisitions that in many cases didn’t work out, as with Jet.com, which it recently unwound, to this new model. It is less capital intensive, for one thing, and less labor intensive. Don’t be surprised if the Shopify news isn’t the last announcement in this realm.
Walmart was up 1.2% to $119.47 Monday morning. The Dow Jones Industrial Average climbed 2.7%.
Write to Teresa Rivas at email@example.com
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