Walmart's E-Commerce Shopping Spree Isn't Over

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Since Walmart (NYSE: WMT) acquired Jet.com in 2016 and installed Marc Lore as its head of U.S. e-commerce, it's been on an acquisition spree. Last year, Walmart bought Shoebuy, Moosejaw, Modcloth, Bonobos, and delivery start-up Parcel.

Speaking at the Shoptalk conference earlier this month, Lore said the company is "looking and talking to more companies than we ever had."

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Walmart notably fell short of expectations when it reported e-commerce sales growth of just 23% in the fourth quarter. Meanwhile, it's sticking by its outlook for 40% year-over-year digital sales growth for the full year.

Even with more small acquisitions, though, most of Walmart's online growth will have to come from its flagship brand and Jet.com. Overall, Walmart generated about $11.5 billion in online sales in the United States last year. A few hundred-million-dollar acquisitions will barely move the needle.

So, what's Lore getting at?

Walmart has historically been shunned by higher-end brands due to its brand association with "everyday low prices." Some brands don't want to be closely associated with Walmart, as it could dilute the idea that they only sell premium products.

But acquiring Jet.com opened the door for Walmart to work with other brands. Jet.com doesn't have the same brand association as Walmart, so there's a good "in" for Walmart with more premium brands. Smaller acquisitions like Bonobos and Moosejaw open new high-end product categories to Walmart that it couldn't access on its own.

The idea behind acquiring lots of smaller companies for Walmart is "let's cross pollinate talent, let's cross pollinate learnings and let's have a common backbone and backend with the Walmart's supply chain," said Walmart's VP of consumer brands, Andy Dunn.

So not only is Walmart gaining access to new high-end product categories, it's also getting new talent. On the other side, these smaller companies are gaining access to Walmart's supply chain and its buying power with suppliers.

But is it enough?

Walmart's portfolio strategy has one big flaw: Shoppers still have to go to different websites to shop different items. You can't buy Modcloth tops on Walmart.com and you can't buy Bonobos pants on Jet.com.

Online shoppers looking for a single shopping cart may have a better experience shopping on Amazon.com (NASDAQ: AMZN), which has 100 million items eligible for two-day shipping via Prime. And that's a real challenge for Walmart.

Walmart's product selection still trails Amazon's even though the company has aggressively added new items to Walmart.com. It now has 70 million unique items for sale on Walmart.com, up from just 10 million at the beginning of last year.

What's more, Walmart still trails in mind share. About half of people go directly to Amazon.com to search for products online. All other retailer websites combined capture just 15% of product searches.

There are better uses of Walmart's money

Instead of going out and acquiring new companies to expand its product selection, Walmart's money might be better spent improving its ability to fulfill orders of its existing product selection. One of the big reasons Walmart's fourth-quarter e-commerce sales fell short of expectations was "operational challenges" the company faced trying to fulfill orders.

In other words, Walmart had trouble keeping its warehouses stocked full of everyday items after making room for seasonal items like electronics. It ought to invest in more fulfillment capabilities to ensure it doesn't miss sales like that again.

That's what Amazon is doing. It's even gone so far as to take losses on sales by spending more on shipping and fulfillment in quarters where its warehouses and distribution centers are capacity constrained.

If Walmart wants to compete with Amazon, it needs to focus on fulfilling every customer order before it worries about expanding into new product categories.

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