Walmart's newest virtual mall addition reveals a hidden strategy to attack one of Amazon's biggest strengths (WMT, AMZN)

Walmart.com

Walmart has added Fanatics, an online sports apparel shop, to its list of stores in its online virtual mall.
It's the latest move in the retailer's plan to increase the number of items it sells on Walmart.com.
Walmart needs to boost its selection to compete with legacy e-commerce players like Amazon and Ebay, which host a much wider selection.

If it can't become "the everything store," Walmart wants to become known as a store that sells everything.

The retailer is in a hurry to add more selection to its website. The latest update, revealed on Tuesday, saw Walmart add a whole selection of authentic sports apparel. Walmart.com now has a full page for Fanatics apparel.

Fanatics, which operates NFLShop.com, NBAStore.com, and MLBShop.com, now has a new specialty shop offering licensed fan gear on Walmart.com.

Make no mistake, however: these items are still being shipped and sold by Fanatics. The deal does, however, add to Walmart's assortment. Walmart made a similar move with Lord & Taylor in 2017, offering items on its website that were still being shipped and sold by the department store. Walmart treats these partnerships much like it does other large sellers on its website, where they sell and ship completely separately from Walmart, like a marketplace.

So why would Walmart want to do this? It's all about broadening the assortment of items it sells. Each of these stores offers something Walmart itself cannot.

Lord & Taylor sells specialty fashions that Walmart does not and could not sell, while Fanatics has authentic sports team and league licenses for branded apparel that would be very difficult for Walmart to get its hands on and be able to sell directly.

"Walmart is recognizing that to be successful in today's market, you're better off being a marketplace rather than an empire," Doug Stephens, a retail industry consultant, told Business Insider in 2017.

The magic word: assortment

Walmart, for all its investments in e-commerce over the last few years, is still lagging behind Amazon in one key area: assortment.

In fact, Walmart.com only sells a little over half — about 55% — of Amazon's one million best-selling products, Cowen noted in a report in October. That could mean that Walmart either doesn't carry many brands or doesn't have enough depth in some brands for certain categories of products.

"Adding the top million SKUs is essential, doable, and critical to propelling the [Walmart e-commerce] ecosystem, in our view," the Cowen analysts wrote.

Walmart management agreed that the gap of assortment between Walmart.com and Amazon.com is still too large, the Cowen analysts wrote, noting that Walmart called expanding assortment a "top priority."

The smaller assortment is a problem for Walmart as it tries to lure customers away from Amazon. Amazon's top one million products account for about 80% of sales on its website, according to Cowen. If Walmart doesn't have the goods, customers won't be convinced to shop there, no matter what the shipping offering is or how low the prices are.

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Walmart is taking steps to try and change that. The new Fanatics partnership is directly aimed at combating this issue and closing the gap.

"As we continue to grow our assortment, we are also focused on adding harder-to-find specialty items," Eric O'Toole, Walmart's general manager of sports and fitness for Walmart's US-based e-commerce business, said in a blog post announcing the partnership. "Today's announcement of our partnership with Fanatics is part of this ongoing commitment to create unique, specialized experiences on Walmart.com that make it easier to find the items our customers (in this case, sports fans) are looking for."

Walmart has similar deals with Advance Auto Parts, Apple, and, Blue Apron that are aimed at creating more selection and making Walmart.com an online destination.

Walmart has also acquired brands like men's clothing brand Bonobos, women's clothing brand ModCloth, lingerie retailer Bare Necessities, and plus-size women's brand Eloquii. It also created its own mattress and bedding brand, Allswell.

Walmart says it now carries 75 million items, all told. That's still way less than Amazon, which boasts over 100 million items on its Prime two-day shipping service alone.

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