Wal-Mart in the Crosshairs of Amazon's Takeover of Whole Foods

By Sarah Nassauer and Imani Moise Features Dow Jones Newswires

Amazon.com Inc.'s purchase of Whole Foods Market Inc. isn't just a $13.7-billion bet on physical grocery stores. It is a direct strike at the world's biggest retailer: Wal-Mart Stores Inc.

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Wal-Mart generates more than half of its $486 billion in annual revenue from groceries and is the country's largest grocer. But the company has been ramping up its digital business with a string of e-commerce acquisitions as its battles Amazon for customers.

Wal-Mart shares fell 6% in early trading, as did other big traditional grocers. The decline erased nearly $15 billion in Wal-Mart market value, or more than what Amazon is spending on Whole Foods. Costco Wholesale Corp. dropped 7.8% while Kroger Co. plunged 15%.

On Friday morning, five minutes after Amazon's megadeal was announced, Wal-Mart completed another small web purchase: It said it was paying $310 million for online menswear retailer Bonobos, known for its $98 chinos. It's the fourth small e-commerce acquisition for Wal-Mart this year.

The rivalry heated up last fall as Wal-Mart bought Jet.com for $3.3 billion and put the startup's founder Marc Lore in charge of its e-commerce operations. Mr. Lore, who had sold a previous startup to Amazon, vowed to use his Wal-Mart perch to take on Amazon.

In its most recent quarter, Wal-Mart said e-commerce sales surged 63%.

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Mr. Lore has since engineered a series of small acquisitions, adding niche online chains that appeal to wealthier or more fashion-forward shoppers than Wal-Mart's core customer such as Moosejaw and Modcloth. Wal-Mart has also ramped up efforts to use its stores to ship online orders and is expanding to hundreds of stores an online grocery pickup service.

Since the beginning of the year, its website has rolled out two-day free shipping with no membership fee to compete with the popular Prime program offered by Amazon.

Wal-Mart's digital push is an extreme departure for its historical model of building hundreds of new stores each year to grow sales. The shift has ruffled some feathers internally and externally, say people familiar with the situation. Billionaire Warren Buffett sold off the majority of his long-held Wal-Mart stock in the wake of the shift.

Write to Sarah Nassauer at sarah.nassauer@wsj.com and Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

June 16, 2017 11:05 ET (15:05 GMT)