The war rages on. On Friday, ecommerce giant Amazon.com (NASDAQ:AMZN) announced one-day deliveries would be the new norm for Prime members’ purchases made at the website. It was a shot mostly at Walmart (NYSE:WMT), which has been making inroads with its online business, sending Walmart stock down nearly 2% as a result. Shares of Target (NYSE:TGT) suffered too.

This is not the old Walmart that let Amazon become the behemoth it has become today, however. Almost as if on cue, the world’s biggest brick and mortar retailer fired back with pointed if cryptic tweet that implied something even better was in store for Walmart.com shoppers.

Investors, and Amazon for that matter, would be wise to take Walmart’s warning seriously.

Amazon’s Announcement
The announcement was made in the midst of Friday’s earnings conference call, when CFO Brian Olsavsky responded to a cost-related question: “We’re currently working on evolving our Prime free two-day shipping program to be a free one-day shipping program.”

An unthinkable feat just a few years ago, Amazon has made one-day shipping possible via the buildout of a vast network of warehouses and fulfilment centers.

The company now operates 25 sorting centers and 75 fulfillment centers spanned across the better part of the continent.

It also operates its own air-freight fleet of 30 delivery jets, and has used technology to establish in-house delivery options like Amazon Logistics to take care of so-called “last mile” work service providers like the U.S. Postal Service and United Parcel Service (NYSE:UPS) can’t or won’t handle.

One-day shipping was an inevitability, given Amazon’s past delivery initiatives that included the use of aerial drones and the current utilization of self-employed, contracted drivers.

Walmart doesn’t have a comparable logistics network. But, it may not need one to hold its own against Amazon.

Walmart’s Response
Kudos to Walmart for a quick and clever response to Amazon’s move. The retailer’s official Twitter account posted Friday evening:

“One-day free shipping…without a membership fee. Now THAT would be groundbreaking. Stay tuned.”

Current and would-be owners of Walmart stock who’ve stayed tuned have yet to hear exactly what the company meant, although it’s not a stretch to interpret the tweet at face value. The retailer will soon offer free one-day shipping on goods sold through Walmart.com and not charge a recurring annual fee for the privilege.

Amazon’s one-day shipping deal would presumably only be available to Prime members, who pay $119 per year for the service.

Don’t dismiss the possibility. While Amazon operated 75 fulfillment centers, Walmart operates almost 4,800 stores in the U.S. alone that can effectively serve as a fulfillment center.

GlobalData’s Managing Director Neil Saunders commented on Walmart’s cryptic plans.

“The truth is many retailers can go one better: they can offer same-day pickup from stores. It’s more cost effective for them, and many consumers actually prefer it to delivery,” he said.

Walmart’s curbside pickup has indeed been a hit.

Saunders adds “Amazon is not so fortunate. It doesn’t have stores that can fulfill in this way, so it has to enhance its delivery options for core customers. That’s going to come with a hefty price tag, albeit one Amazon can afford.”

Walmart has already put such infrastructure in place. The key to one-day shipping is simply accelerating the process.

Target, by the way, already offers same-day delivery of goods ordered online.

The Bottom Line for Walmart Stock
It’s not a reason in and of itself to buy Walmart stock, but it certainly bolsters the bullish case.

Walmart.com is still well behind Amazon.com in terms of driving online sales, but it’s catching up quickly now that relatively new CEO Doug McMillon has made a point of giving e-commerce its due attention.

Early this year McMillon explained his vision of expanding the company’s online selection as a means of making its online business more profitable now that its growing in earnest. Last quarter’s e-commerce revenue grew another 43% year-over-year, extending a long streak of double-digit growth.

Stepping up its war with Amazon.com will bite into that budding improvement, but it’s an added expense Walmart has room to add. Indeed, Amazon may have just picked a fight with Walmart it can’t actually afford to handle.

— James Brumley

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Source: Investor Place