Shopify (SHOP) Up on Walmart Deal, Takes the Fight to Amazon

The coronavirus pandemic has triggered online shopping, which bodes well for online retail companies.

Per National Retail Federation data, retail sales in 2020 are expected to rise 3.5% to 4.1% to a range of $3.93 to $3.95 trillion, despite uncertainty surrounding the trade war, the COVID-19 outbreak and the presidential election. Online sales are expected to improve from 12% to 15% to between $870.6 billion and $893.9 billion.

The immense growth prospects are alluring enough to attract companies, like Shopify SHOP, to enhance its competitive prowess and challenge the incumbents, including online retail giant Amazon AMZN, a dominant force in the e-commerce space.

Markedly, shares of Shopify, currently carrying a Zacks Rank #3 (Hold), gained 8.5% on Jun 15, following the mammoth deal with Walmart WMT with an aim to expand merchant base. Notably, Walmart is Amazon’s closest competitor in the retail domain.

Per the terms of the partnership, both the companies introduced a channel to enable Shopify merchants to offer products on Walmart.com.

With the new deal, both Shopify and Walmart are well poised to boost presence among small to medium-sized enterprises by enabling sales through multiple-channels.

Thereby, this first-of-a-kind partnership, presents a win-win for both Shopify and Walmart to expand business opportunities significantly. This can be viewed as a direct challenge to Amazon’s dominance in the online retail space.

Enhanced Features to Boost Merchant Base

The approved merchants in the United States are required to connect their Shopify store to Walmart Seller Account and synchronize product catalog and establish product listings on Walmart.com.

Notably, Walmart.com boasts of monthly visitors of more than 120 million Americans. Apart from access to a huge buyer base, the merchants can also benefit from robust inventory and order management capabilities, making it easier to track products, orders, and gain more visibility into inventory.

Further, bulk editing marketplace listings feature will make it cost and time efficient for merchants to list variety of products. Moreover, no additional monthly fees, is another positive.

By the end of 2020, around 1,200 Shopify merchants are expected to be able to sell through the Walmart marketplace.

Partnerships to Challenge Amazon’s Moat Bode Well

Shopify, currently carrying a Zacks Rank #3 (Hold), is well positioned to benefit from growth in the number of merchants and increased buying of essentials due to COVID-19 induced lockdowns and social distancing norms.  Moreover, the company continues to add functionality to its platform, which is responsible for driving merchant base.

The company has steadily made progress to enhance its competitive position against Amazon with new partnerships and efforts to strengthen its fulfillment network. Notably, Shopify has returned 102.6% on a year-to-date basis, compared with Amazon’s gain of 39.3%.

Year-to-Date Price Performance

On May 19, 2020, Shopify announced its partnership with Facebook FB to help businesses create Facebook Shops — a new and free tool that aids merchants create customized online storefront for Facebook and Instagram.

Moreover, the company has acquired 6 River Systems — a well-known provider of warehouse technology for roughly $450 million with an aim to boost growth of its distributed fulfillment network. Notably, the fulfillment network was launched in June 2019. The company intends to invest $1 billion on strengthening its footprint in this space.

Shopify’s fulfillment network utilizes ML driven inventory-allocation technologies to help merchants avoid additional shipping charges. By ensuring optimized utilization of space and time, merchants can manage inventory and stock better. Moreover, consumers can avail quicker delivery.

However, Amazon is witnessing flurry of orders on account of customers’ unwillingness to visit offline stores on fears of contracting the deadly virus. The e-commerce giant’s initiatives to strengthen its Same-Day Delivery program is anticipated to help it manage the increasing number of orders during the crisis.

In fact, Amazon, currently carrying a Zacks Rank #3, has commenced hiring at new warehouse and delivery domains to meet increased demand for shipments owing to the coronavirus pandemic. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apart from this, the company’s one-day shipping and many other fast delivery services remain noteworthy and are likely to instill investor confidence.

Further, Amazon’s dominance in the fulfillment center management space is driven by automation and robotics strength. The company benefits from improved efficiency as a result of the deployment of these robots. This is expected to provide further competitive leverage against prominent retailers like Walmart, Target and Kroger.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
Facebook, Inc. (FB) : Free Stock Analysis Report
 
Shopify Inc. (SHOP) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research