Walmart is reportedly projecting losses of more than $1 billion for its U.S. e-Commerce division, and some executives are allegedly pushing for the sale of ModCloth, people familiar with the matter told Recode. The retailer’s e-Commerce revenue is expected to reach between $21 billion and $22 billion this year, but this income is allegedly being offset by acquisitions of new brands and expensive programs such as next-day shipping.
The digital division’s losses aren’t necessarily devastating for Walmart: the company reported nearly $7 billion in overall profits in 2018. However, sources claim executives are putting pressure on Marc Lore, President and CEO of Walmart eCommerce U.S., to curb the decline by reducing the amount spent on e-Commerce initiatives.
Three sources claim the retailer has decided to stop purchasing pure play e-Commerce brands for at least the next year as part of this effort, barring “an incredible acquisition opportunity that is just too good to pass up.” The moratorium could be due to the performance of Walmart’s recent acquisitions ModCloth, Bonobos and Eloquii, which have not yet become profitable, according to the sources.
Additionally, ModCloth will “likely” be sold. Executives briefly pursued the sale of Bonobos but ultimately decided against it, according to people familiar with the matter. Walmart will reportedly still incubate its own new internal brands, but will put the focus on items that can be sold both on Walmart.com and at Walmart stores.
Another area where Walmart has reportedly shown reluctance about heavy investments is new warehouses. Lore says the company needs to spend billions annually on building up its warehouse network in order to compete with Amazon on both selection and speed, according to the sources. E-Commerce accounts for just 5% of the retailer’s sales, and Walmart has about 20 fulfillment centers compared to the 110 operated by Amazon.
The company still has a long way to go to catch up to Amazon, which accounts for nearly 38% of online retail compared to just 4.7% at Walmart, according to eMarketer data. However, some analysts believe competing directly with Amazon is a losing proposition, and Walmart needs to focus on leveraging its existing strengths, in order to grow online without breaking the bank.
“To call out Walmart as being at an online crossroads is unfair — the fact of the matter is everyone is playing catch up to Amazon,” said Michael La Kier, Principal at What Brands Want, LLC in a RetailWire discussion. “The key to success is to not focus externally, but internally. Walmart must leverage their own unique strategic advantages as they explore what shoppers want. If they try to compete on Amazon’s turf they will lose. If they use their own strengths (BOPIS, grocery, etc.) they can grow their online sales without losing their shirts!”