(CNN) – Walmart is finding it somewhat more difficult than expected to compete head-to-head with Amazon.
The nation’s largest retailer has been making tremendous gains in online sales, but those still represent only a fraction of its $500 billion in annual sales. But the pace of online growth slowed more than expected in the quarter. Online sales were up 23% compared to a year ago, but slower than the 50% growth Walmart enjoyed during the first nine months of its fiscal year. It’s also slower than the 40% growth it is projecting for this coming fiscal year.
Some of that slowdown in growth was because the company ran out of some items at its online fulfillment centers, said CEO Doug McMillon.
“We’re learning how to deal with higher volumes and learning how to deal with a higher peak than what we had previously,” said McMillon on a call with analysts.
But fulfillment issues don’t account for all of the problems. The company also announced thinner profit margins as it needed to cut prices more than expected to compete with Amazon. It also had increased transportation costs, partly due to pricier fuel and partly due to the cost of free two-day shipping program.
A year ago it launched free two-day shipping on online purchases of $35 or more, and unlike Amazon, it doesn’t require customers to pay an annual membership fee to get that free shipping.
But the company is still making more inroads into online shopping than many traditional brick-and-mortar retailers. And executives say they’re pleased with the online performance, despite some of the setbacks.