Is Walmart on a roll?

Discussion
Photo: Walmart
Aug 19, 2016

There are so many stories written about Walmart trying to catch up with Amazon.com online that you might think the world’s largest retailer is having a tough go of it in the U.S., that is, if you didn’t pay attention to the company’s financials. Yesterday, Walmart reported customer traffic increased for the seventh straight quarter helping achieve a same-store sales gain of 1.6 percent, the eighth consecutive quarter of positive comps.

President and CEO McMillon told analysts on yesterday’s earnings call that Walmart continues to make improvements managing its inventory. “Our customer satisfaction scores continue to improve, and the team did a great job of managing the flow of inventory again this quarter. Comp store inventory was down 6.5 percent and in-stock levels are up.”

Mr. McMillon said total e-commerce sales increased 11.8 percent overall with the U.S., outperforming the company’s results in other markets.

“This was primarily due to growth in our marketplace offering in the U.S., the continued roll out of online grocery and growth of pick-up in stores and clubs,” he said. “We continue to see proof that our customers enjoy a seamless shopping experience. The distinctions that we talk about today between stores, apps, pick-up, delivery and sites are continuing to blur into the background for customers. For them, it’s just Walmart.”

Speaking about its proposed acquisition of Jet.com, Mr. McMillon said the move would enable the company to achieve growth more quickly than on its own.

“One of the things we like about the technology they’ve developed is that it rewards customers in real time with savings on a basket of goods and puts them more in charge of the price they pay. This empowers customers in a way that is true to the spirit of Walmart,” said Mr. McMillon. “When customers build a basket of goods online rather than ordering one item at a time, shipping economics are in their favor and ours. Walmart’s advantage has always been in providing the lowest prices on a basket, and Jet has created a unique way to deliver the lowest cost basket online.”

DISCUSSION QUESTIONS: Are low prices at the heart of Walmart’s recent success in the U.S. or do you see other factors as or more important? What are the keys to the retailer achieving continued growth in the U.S.?

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Braintrust
"As we’ve seen time and time again, it’s the perception of low prices, not necessarily the reality of low prices, that drives shoppers to Walmart."
"Walmart’s net profit margins are just over 3 percent and have been consistently decreasing over the last five years. How is that a success story? "

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16 Comments on "Is Walmart on a roll?"


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Frank Riso
Guest

Low prices are truly the driving factor in the success of Walmart. In addition, the closing of poor performing stores and increasing the number of Neighborhood Markets added a great deal to their financial results. Going forward Walmart will continue to be a price leader but the more they source products made in the U.S. the more their customers will shop Walmart. Made in the USA was one of the founding pillars of the company but was lost in the great expansion years of the ’90s in order to keep the prices low. Getting back to Made in the USA for as many products as they plan is a very good move.

Ori Marom
Guest

Walmart’s net profit margins are just over 3 percent and have been consistently decreasing over the last five years. How is that a success story?

Unfortunately, Walmart is benefiting from a downward shift of Americans towards the lower-middle class. In that area of “growing success” it is expected to face stiff competition from local dollar stores. In the upper socio-economical segments it is expected to lose more grounds to online commerce.

Ron Margulis
BrainTrust

As we’ve seen time and time again, it’s the perception of low prices, not necessarily the reality of low prices, that drives shoppers to Walmart. They have been very good at marketing that perception for years, creating a marketplace where most competitors have had a hard time challenging them. The retailers that have been successful competing with Walmart — Amazon, Aldi and other deep discounters, Publix, H-E-B, etc. — have done so by relying on sharply different assortment models and/or stressing customer service. Those are the marketing elements that Walmart has traditionally not been as good at. To continue growing, they’ll have to turn that around and this latest bit of financial news suggests they are finally doing just that.

Max Goldberg
Guest

Yesterday the BrainTrust tackled the question of Walmart using local police forces to compensate for the company’s lack of proper security. A number of the panelists pointed out that many Walmart employees receive public assistance because the company does not pay a living wage. Today the company announces stellar growth and earnings. There something fundamentally wrong with this picture.

Chris Petersen, PhD.
Guest
Walmart is still the “Whale of Retail” — the world’s largest with four times Amazon’s revenue. Yes they are lagging in online growth versus Amazon, but who isn’t? The purchase of Jet shows that Walmart now understands both the differences of competing online, and the value of customer-centric online technology/systems. The future of retail still includes stores, and Walmart has more than 10,000 of them worldwide. To remain profitable Walmart must compete on more than price. The most recent numbers are solid indicators that Walmart is getting the core essentials right: Store inventory reduced 6.5 percent AND in-stock level up; Same-store sales overall grew 1.6 percent double the projected gain; Same-stores sales in the U.S. up 2.2 percent while many retailers are flat or declining; Neighborhood Market sales up 6.5 percent; All of the above are in stark contrast to Target’s disappointing numbers. Many get caught up in comparing revenue growth between Amazon and Walmart, but there is one core retail metric essential for survival — generating bottom-line results. The Q2 reports indicate that Walmart… Read more »
Lee Peterson
BrainTrust

I wouldn’t get too excited about those numbers as they include their knock-off of Amazon’s Prime Day, which obviously provided a nice bump. Having said that, it is good that they’re doing better, especially in light of focusing more on fundamentals like paying associates a fair wage and gussying up the stores. Those are just good moves.

The other side of that coin is Target, who is struggling. Walmart’s bigger piece of the pie could lie in Target’s wake. So once again, you’d have to say that the master strategy of having a real grocery section (over 50 percent of their business) has proven out in a big way.

David Livingston
Guest
5 years 9 months ago

Same-store sales better be up. They closed a boatload of stores, we have inflation and population growth. I think Walmart and other retailers need to be having same-store sales growth of 3 percent or more or they are losing market shares. Sure Walmart can produce some good financials by controlling expenses. That’s good for investors. But are they gaining market share? I don’t see any evidence of that.

Jasmine Glasheen
BrainTrust
Jasmine Glasheen
Principal Writer & Content Strategist, Jasmine Glasheen & Associates
5 years 9 months ago

Like Goodwill, whose prices for used goods have become so high that they rival the prices for the new products, Walmart’s reputation for sourcing within the U.S. has outlasted their practice of doing so.

Walmart’s reputation as an American-sourced company will be even more important if the Trans-Pacific Partnership is passed. American-made products will face intense competition and buying will become increasingly political. Customers will be looking for products Made in the USA, which will make Walmart the standard for low-income buyers.

As Amazon sources wherever they can, if the trade deal is passed I foresee online buying being polarized between Amazon and Jet. This means the deal would greatly benefit Jet/Walmart’s online market.

Dick Seesel
BrainTrust

Walmart veers from under-performance to over-performance over time, and the latest “over-performance” is really only in contrast to competitors like Target. A very modest comp-store sales increase is nothing to write home about when Walmart continues to lose share to Amazon, dollar stores and other competitors. That being said, Walmart is doing a consistently better job drawing in regular food shoppers than Target, and some of its investments in store improvements are starting to pay dividends. But a 1.6 percent same-store increase isn’t cause for celebration, even in today’s tough environment for general merchandisers.

Ross Ely
Guest

Walmart’s positive results underscore the complexity of today’s retail environment and the myriad of factors on which retailers must execute well to be successful. As management indicates, Walmart’s success is not just due to low prices, but also by strong inventory management and customer service.

It’s interesting to focus on e-commerce and its potential impact on future growth, but the reality is that Walmart’s financial success in the near-term is much more about blocking-and-tackling execution in its physical stores.

Dr. Stephen Needel
BrainTrust

Walmart does the basics well — they carry products most people want at prices that are good to better than most places. It suggests “customer experience” is an over-hyped concept, as nobody has ever pointed out Walmart as a great experience.

Mark Heckman
BrainTrust

Good retail performance is always about flexibility and adaption to competitive and marketplace threats. While Walmart has some fundamental long-term issues to wrestle with, their reactions in terms of store closures and price reductions appear to have righted the ship in the near-term.

Longer pull, dealing with the acquisition of Jet.com, heavy store inventories and continued pressure from other price operators will create challenges that will continue to plague Walmart. Time will tell if they are up to the task.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
5 years 9 months ago

My constant theme is that retailers need to return their focus to the stores and stop chasing shiny digital baubles — use tech when it strengthens, but don’t ever chase it “because you should.” Should is not a good enough reason.

So it’s good to see that Walmart has focused on the core of brick and mortar success — merchandising — and the smart tech option of buy online, pick up in-store.

THOSE are the lessons I think other retailers should take from this. Too many have wasted a decade focused on the Amazon mirage during which they ignored brick and mortar fundamentals. This is only a single quarter. But given solid Home Depot and L-Brands results, we need to start seeing stories about the triumph of traditional retailers.

Larry Negrich
Guest

Walmart’s agility may be in question, but its aggressive drive to increase market share has not waned. The purchase of Jet, regardless of what you believe will be the end result of the acquisition, demonstrates their willingness to take risks as they look for growth. They do have a lot of sectors nipping at the low-cost value prop with some margin being eroded. To be threats those competitors will have to take them on in the rural areas where Walmart decimated single operators and they are still often the only game in town.

Ken Morris
BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
5 years 9 months ago
While everyday low pricing is the cornerstone of Walmart’s success, its recent success is probably more of a result of its ongoing efforts to offer its customers a seamless omni-channel experience. As retailers like Walmart enhance their cross-channel services, like buy online and pick-up in the store, those companies that offer what consumers want will win and the laggards that ignore consumers’ expectations will lose. I think the acquisition of Jet.com was a smart move for Walmart, as it will enable them to penetrate consumer segments with higher incomes and the Millennial generation which is a sweet spot for Jet. The dynamic pricing model on Jet’s ecommerce platform will also provide Walmart opportunities to integrate some of these strategies into Walmart.com. The key to Walmart’s — and all retailers’ — success is to find creative ways to enhance the customer experience and the cross-channel shopping journey. And innovative new technologies will continue to offer savvy retailers opportunities to leapfrog the competition. Going forward if Walmart continues to sell to my children and not my parents,… Read more »
Kai Clarke
BrainTrust

Price, price, price. This is the key to Walmart’s success, as well as their willingness to spend enough financial support and focus on their e-tailing efforts. Their desire to purchase Jet.com also points to the increased importance of generating online revenue and how it is impacting their bottom line as this segment continues to become more and more important. Growth also comes from offering a broad selection of items that their target market wants. Position both of these to the consumer (and manage out-of-stocks) and you have Walmart’s keys to success.

wpDiscuz
Braintrust
"As we’ve seen time and time again, it’s the perception of low prices, not necessarily the reality of low prices, that drives shoppers to Walmart."
"Walmart’s net profit margins are just over 3 percent and have been consistently decreasing over the last five years. How is that a success story? "

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