Greg Foran, President and CEO, Walmart U.S., with associates at the 2018 annual shareholders meeting. Photo: Walmart
Walmart posts strongest U.S. comps in more than a decade
It’s really good to be Walmart. Yesterday, the world’s largest retailer announced that its same-store sales in the U.S. grew 4.5 percent the 13 weeks ending July 27, the strongest quarterly growth for the chain in more than 10 years. The retailer saw increases in customer traffic (+2.2 percent) and the average ticket (+2.3 percent) in its stores and online.
Walmart reported sales increases in the mid-single digits for grocery, with strength in fresh categories including bakery, meat and produce. Management said that customers responded well to investments the company has made in lowering prices and in its private label brands.
The chain’s general merchandise sales were strong, with seasonal categories including apparel and lawn & garden benefitting from warmer weather. Comps for electronics reached a four-year high as consumers responded well to an expanded assortment within the category.
Online sales at Walmart grew 40 percent during the quarter as the retailer continued to invest in expanding assortment (1,100 new brands added) while integrating its digital and physical operations. The chain now offers online grocery order pickup at 1,800 stores and expects to be able to make deliveries to about 40 percent of the U.S. population by the end of 2018.
The sole negative in Walmart’s quarterly report, a slip of 17 basis points in gross profit, is not being seen as a need for concern.
“Margins continue to reflect investments in price, people, stores and technology, though decreases were fairly well-contained, and market share continues to grow,” said Charlie O’Shea, lead retail analyst for Moody’s, in an email to RetailWire.
“The food business continues as a bright spot, with rapid rollout of in-store pickup well underway, and product delivery expanding as well,” Mr. O’Shea added. “Working capital continues to improve, and the company’s guidance indicates that it expects first half momentum to continue for the balance of the year.”
Discussion Questions
DISCUSSION QUESTIONS: What is Walmart doing right that other retailers can emulate? Where do you see the greatest opportunities for the retailer to continue growing market share? Where do you see vulnerabilities?
Poll
BrainTrust
Paula Rosenblum
Co-founder, RSR Research
Andrew Blatherwick
Chairman Emeritus, Relex Solutions
Yeah — we have a viable long-term competitor to Amazon! It’s great to see some financial results coming from all of the out-of-box innovation efforts. Customers vote with their wallets, and Walmart’s focus on customer experience is paying off in terms of traffic and sales. Yes there are some margin pressure during expansion, but the other player had that issue for a decade. This news should set alarms off for the rest of U.S. retail. Retailers have to continue to innovate to become and remain relevant to customers.
A lot of retailers are paying more either through lowering prices or incentives to attract customers. Sales at any cost, if you don’t have Walmart or Amazon’s access to Wall Street capital is a race to the bottom. I wouldn’t see a slip of 17 points in gross margin as something other retailers should emulate, but I’m sure they will.
Editor’s note: To clarify should anyone be confused, Walmart’s profit margin decline was 17 basis points, which represents .17 percent and not 17 percent. Investors would have been running around with their hair on fire had the latter percentage been the case.
The key part of the question (and the answer) is: what can retailers emulate? Well, if you are not Walmart you can’t emulate a lot of Walmart does because you don’t have the scale. Other retailers need to be different than Walmart until they reach that scale.
I’m betting there are lots of retailers who would be thrilled to be 1/100th the size of Walmart. They wouldn’t need size or scale or ubiquity to explore and experiment. Walmart is innovating and competing. All retailers can innovate and compete. Step #1 is know your customer and be a good merchant. A couple of mall retailers could start right there.
We don’t disagree. I was once asked by the CEO of a deep-discount schlock house “What does Walmart do?” All I could think of is “Why are you asking that question? You are not capable of doing anything Walmart can do.”
And that continues to be true. Smaller retailers have every right to aspire to be great but not necessarily to “emulate” Walmart. They should, as you say, do their own thing. Trying to emulate Walmart is like trying to out-Amazon Amazon; a prescription for commercial suicide.
There’s not just one thing Walmart is doing right — they’re doing a lot of things right. They are also experimenting a lot, and discarding concepts/ideas that don’t work and moving on. The key attribute that sets Walmart apart from others is how they have become brilliant innovators. And not only have they created an innovation engine, but they are among the best at executing ideas when they find things that work. It’s hard to imagine a category that Walmart couldn’t compete in, and so I believe there’s still room to expand product lines and service offerings. Vulnerabilities? Good question.
Walmart warned that its innovations in the next couple of years were going to cost money. Three cheers to them for a.) continuing, b.) going to war and c.) not folding their tents.
Keep innovating. That’s the big opportunity.
I agree, keep innovating. The cost of innovation is going to cost Walmart longer than just a couple of years as they warned. Walmart must continually invest heavily in its business. As soon as Walmart stops innovating and investing, the sooner they will join the ranks of “the too big to fail” and “the bigger you are the harder you fall” club that Sears and Kmart are members of.
I think Mark has it exactly right. Walmart is doing lots of things right. They fail fast, learn fast, fix fast, scale fast. They didn’t always, but they are being dedicated students of the current market. I say Explore + Experiment = Experience. They are exploring and experimenting on their own behalf. Many say that Bonobos was way outside the boundaries of their brand promise. But in the name of exploring + experimenting I say, bravo!
One unsung hero of the Walmart story is its very strong marketing campaign. The use of retro pop hits to push its omnichannel strategy is memorable and effective, especially based on the grocery sales.
Walmart seems capable of sustaining some margin slippage for the sake of market share — the only downside in these numbers is the relative weakness of softlines categories vs. food and commodities.
What is the issue with online retail taking all the sales from brick-and-mortar? Clearly in food this is not the case and, as reported yesterday, customers are not turned on by online grocery shopping, reflected by the strength of Walmart’s fresh and meat categories.
If you get your pricing right and offer right, you can still trade well in grocery stores. If you can then successfully merge that with a credible online offering, you can do very well. This may not be true in all sections of retail, clothing particularly is having a very tough time, but those who ring the death bell for retail are way off the mark. Don’t let retailers use it as an excuse for poor management. Technology can help retailers get it right — the poor ones have stopped investing and that will eventually bring them down.
Walmart.com is becoming a more attractive marketplace for third party sellers.
Walmart.com has momentum. Research with Amazon sellers by Feedvisor found 36% plan to expand their sales to Walmart.com. This is nearly 10 points higher than eBay, and excludes Jet. Last year the number of sellers inclined to sell on Walmart.com was less than 30%. In 2018, 17% of Amazon merchants also sell on eBay, 8 points higher than last year.
Walmart has a structural advantage over other leading online marketplaces. Customers can purchase online and pick up in store. By the end of this year, Walmart will have 700 automated in store pickup machines. In the fall, third party buyers on Walmart.com can clearly see merchant return policies on product pages and even print return shipping labels at discounted shipping rates. Buyers will also be able to return third party items in stores.
Other retailers have shied away from third party sellers because of the uneven customer experience. Walmart.com is smoothing out the bumps.
Walmart has stayed ahead of curve by staying true to its roots of low price and convenient locations while opening up digital markets — nothing less than accretive.
Walmart continues to turn a profit for investors, while keeping itself at the top of the retail chain. The thoughtfulness of Walmart’s leadership to shift to an innovation culture has been nothing short of amazing. Since 2016, by bringing on Marc Lore, buying Jet.com for $3.3B and most importantly, giving him the keys to the castle, they’ve been willing to take courageous moves to change.
Retailers to follow suit won’t have Walmart’s resources, but retailers can still engage in digital transformation, building their business to better serve their customers, solidifying their base capabilities and bring in analytics. Walmart touts its stuff here and if you walk through many of the articles, you’ll see evidence of the enormity of innovation they’ve put into concepts like Walmart Labs, Store #8, pilot stores, Walmart academy, etc. Walmart understands that to succeed is putting the customer front and center while at the same time placing great reliance on their employees to make this happen.
Even so, many of Walmart’s technologies that are most successful are not necessarily customer facing, like supply chain efficiencies on the back end — to offer a 2-day delivery, online returns in the store, or grocery pickup.
Walmart also took steps to trial with a willingness to fail. Take a look at their failures as well: Walmart Express new store formats (closed down), Scan and Go (moved to Garden only and no longer self-service), Employee deliveries, Partnering with Uber and Lyft, competing on assortment count with Amazon, competing on free shipping (table stakes). Marc Lore and team wasn’t sacked, but elevated and given more resources.
Walmart has international markets, partnership opportunities with niche retailers, and expansion opportunities for its employee-customer relationship — which is what Sam Walton built the company on — so, market share is waiting. So long as Walmart follows a ‘counter but not copy Amazon’ mentality, leverages their size and presence, they’ll be on the right track. The comps numbers are just results of a few years of effort combined with a strong retail economy.
Walmart is not resting on their laurels! In the past few years, Walmart has invested heavily in innovative concepts and technologies, including numerous acquisitions, that expand their target market, enhance technology capabilities and improve the customer experience. Walmart’s Store No. 8 is their innovation lab to test new concepts, which is a model other retailers can emulate.
While not all of Walmart’s endeavors have been successful (think Scan & Go), they are not shy about trying new things and they are becoming one of the most innovative retailers.
Here are some of the innovative concepts they implemented or tried: conversational commerce/virtual personal assistant, augmented reality 3-D virtual shopping tours, robots to pick merchandise for online orders, Jetblack personal shopper via text messaging, and many more.
Ten years ago, who would have predicted that Walmart would be this innovative? Innovation will be the key to survival for retailers!
It’s often nice in our Amazon-obsessed world to have these reminders that it wasn’t the first big retailer to come along … indeed Walmart still dwarfs them (though that may not be true in 20, 10 or even 5 years).
But back to Walmart: it’s easy to point out what they’re doing “right” — at least as regards their own interests — but it’s much harder to point out thing others can emulate. I guess one could offer up bromides like “execute well” or “stick to what you do best,” and while these aren’t unimportant and are often overlooked, the basic fact is WM’s MO is to use its huge clout to squeeze suppliers and undersell competitors … not something one can just “do.”
And it also makes me ambivalent in answering the question of their growing market share. As a shareholder, I’m sure I would like that to happen, but as a consumer, or even a disinterested party, I’m not sure I like the idea.
The key to success is to change to compete with amazon while leveraging the core strength of the chain. For retailers not walmart the key is to emulate the part that can be replicated such as assortment and customer service improvements in the store, and don’t try to chase the low cost strategy which is Walmart and Amazon’s core.