Why Walmart’s e-commerce growth is cooling off while Amazon is still on fire

Walmart’s e-commerce growth has fallen back to earth.
Walmart’s e-commerce growth has fallen back to earth.
Image: Reuters/Mike Segar
We may earn a commission from links on this page.

Throughout 2020, when the pandemic pushed shoppers online in giant numbers, Walmart’s e-commerce sales soared. The US retailer worked fast to adjust, developing software and capabilities to serve customers across its stores and digital channels that it’s now selling to other retailers.

Last year, Walmart’s US e-commerce sales grew 97% (pdf) in the second quarter compared to the same period in 2019, the fastest rate on record for the world’s largest retailer. But the breakneck growth has now slowed to a crawl.

Walmart today reported e-commerce sales in the US rose 6% during the three months through July 31, according to its Aug. 17 earnings release (pdf). The slowdown was inevitable as pandemic restrictions eased, but the retailer’s explosive online growth at the start of the pandemic makes the comparison especially tough for the retailer.

The surge in Walmart’s online business had helped it stand out as a genuine competitor to Amazon, since its e-commerce sales, though smaller overall, were increasing faster. But in its quarter through June 30, Amazon’s sales in North America grew 22% (pdf). While that figure includes what it earned from other income streams such as subscriptions, Amazon says it “primarily consists of amounts earned from retail sales of consumer products,” most of which, of course, happen online.

In fact, Amazon has been on track to overtake Walmart as the largest US retailer. JPMorgan predicted it could happen as soon as 2022 since Amazon already owned an estimated 40% of US e-commerce. But a new estimate has Amazon’s sales surpassing Walmart’s over the 12 months ending in June, marking the e-commerce giant’s eclipse of its brick-and-mortar rival.

The shifting balance between Walmart’s stores and e-commerce

A second big reason Walmart’s online sales slowed is Walmart shopper’s desire to go back to in-person shopping. ”We definitely saw a traffic shift back into store from e-commerce,” said John Furner, head of Walmart’s US operations, on a call with analysts to discuss the company’s earnings.

Walmart’s network of more than 4,700 US stores remains the foundation of its business. Though Americans are buying online more than before the pandemic, many also returned to shopping in-person over the past few months as restrictions eased. In fact, Walmart’s total US sales were up 5.3% above their level last year as the company saw strong sales of groceries and a good start to back-to-school purchases. It also acknowledged government measures such as stimulus providing a sales boost.

Executives were sanguine about the business in their call with analysts, saying in some moments in-store shopping will lead and other times e-commerce will lead, but noting the company has a more digital mindset overall. “Building digital products that marry e-commerce with stores takes more work than just building an e-commerce solution, takes more time, takes more complexity, but that’s where the secret sauce is,” said Doug McMillon, Walmart’s CEO. If the company is able to keep blurring the lines between stores and digital channels, he added, customers can shop wherever they want and the growth of any one part of the business won’t particularly matter.

Still, e-commerce accounts for a rising share of total US retail sales, a trend the pandemic has only accelerated. To stay competitive against its rivals, especially Amazon, in this landscape, Walmart needs its online sales to keep expanding, too.

This story was updated to note Walmart is the largest US retailer, while China’s Alibaba is the largest global retailer by goods sold (merchandise volume), and Amazon’s annual sales surpassed Walmart’s in June 2021.