This year, Walmart’s two-pronged approach to competing in the Amazon era became clear.

Online, it began building a curated arsenal of millennial-friendly brands, with Bonobos, Modcloth, Eloquii and Jet.com angled toward winning over a younger customer. At the same time, Walmart mobilized its massive store network to take on logistics around delivery and convenience. The goal: to use its physical store network and scale to take on Amazon on pricing, product selection, and online experience.

It’s a tall order for any retailer, but experts say Walmart’s e-commerce machine has the muscle to give Amazon a run for its money and build on its investments over the past year.

“[Walmart] is being competitor-aware and doing what they need to do — Walmart very early on experimented with customers taking things home [to online buyers] and having associates [deliver], with mixed success,” Forrester principal retail analyst Sucharita Kodali recently told Digiday. “They were doing things that were unique that even Amazon hadn’t rolled out.”

If you can’t beat them, you may as well buy your way to close the gap with the competition. Through acquisitions of direct-to-consumer brands, Walmart is not only acquiring a new customer base, but it’s buying into talent. This is particularly true of Marc Lore, founder of Jet.com, who is currently president and CEO of Walmart’s U.S. e-commerce operations, and Bonobos founder Andy Dunn, who became svp of digital brands for the same group.

Over the past year, Walmart made bold investments in e-commerce, which included supply chain and logistics investments to ensure delivery as quick as possible, free two-day shipping, along with a series of e-commerce acquisitions: Indian marketplace Flipkart (May), plus-size womenswear brand Eloquii (October), Bare Necessities (October) and Art.com (December). The company’s acquisitions, together with tech and supply chain investments to power delivery, are setting itself up to go head to head with Amazon.

It’s also taking the e-commerce know-how from its acquired brands and using it to develop its own digital brands: The company in February rolled out an online bedding brand of its own called Allswell. The look and feel of Allswell takes lessons from its direct-to-consumer acquisitions and in-house marketing expertise and puts them into practice. Unlike Amazon’s utilitarian private labels, Allswell appears as it if it could be a direct-to-consumer brand all on its own. It speaks to the core of Walmart’s e-commerce acquisition strategy, which, as Lore explained in a recent LinkedIn post, is to aim for category leaders with specialized expertise and assortment to boost customer experience and assortment on Walmart.com and Jet.com (for example, Hayneedle, Moosejaw and Shoes.com), and brands that offer unique products like Bonobos, Modcloth and Eloquii.

But Walmart’s biggest weapon in this battle is its network of 5,352 stores, which it can use as delivery hubs and pick up points. By December, the company had rolled out Apple-style, associate-initiated Check Out with Me, effectively eliminated the friction-laden experience of lining up to pay.

The retailer is also on a tech hiring spree to support these investments: Walmart reportedly devotes 2 percent of its overall hires to tech positions.

“Walmart has got thousands of stores, compared to hundreds Amazon has through Whole Foods — they can be really thoughtful in considering how to connect what’s in store to what’s online, and its stores are a much higher source of traffic, and that’s why they’re emerging as the key omnichannel competitor to Amazon,” said Bryan Gildenberg, chief knowledge officer for retail at Kantar Consulting.

By strategically using its store network, and building on its penetration in the grocery market, Walmart could begin to close the gap with Amazon.

“They’re trying to eliminate the negative points of difference between them and Amazon as much as possible; I think you’ll see them lean in on rapid delivery, with attempts to expand the marketplace, to make them the logical destination for the shopper,” he added.

But Walmart still has a ton of work to do, especially when you consider Amazon’s search advantage: Nearly half of U.S. internet users began product searches on Amazon, per eMarketer. While Walmart has around 1,100 brands on Walmart.com, it will need to broaden the assortment to get the critical mass to rival Amazon.

“One of the biggest challenges it has is that Amazon is so strong from a distribution and pricing perspective, and Walmart has to have the chops to compete,” said Corey Pierson, CEO of customer intelligence platform Custora.

But through Walmart’s strategy to let online-first brands operate as distinct entities, as it did with Bonobos, which it acquired in 2017, the retailer can tap into the customer loyalty that these companies have built, and in turn, position it to capture a different type of customer than its traditional ones.

“What they’re trying to do is they’re acquiring brands that themselves have found a way to compete with Amazon,” said Pierson. “If you look at Eloquii, there is brand loyalty there [among its customers] — they’ve been waiting for a brand that would bring fashionable attire to the target segments; Walmart has been very strategic in acquiring brands that have figured out the puzzle, that sweet spot, or product market fit.”

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