Bold Walmart grasps omnichannel nettle, GlobalData
Walmart’s latest results prove that it is now firmly in the midst of a dramatic transition. “As much as the structural changes are disruptive and, in some cases, profit-eroding, we believe they are necessary in order for Walmart to thrive in a new era of retail,” says Neil Saunders, Managing Director at GlobalData Retail.
Online sales in the US rose 33% in the three months to the end of April. Total revenues climbed to $122.7 billion, exceeding Wall Street forecasts for $120.5 billion, and up from $117.5 billion a year earlier. “In our view, too many legacy retailers fail to make the bold moves needed to maintain their relevance,” says Saunders. “Walmart is not one of them. It has both the will and financial muscle to ensure it remains a retail leader for many years to come. Indeed, we think it is one of the few companies that can truly take on Amazon in a serious and meaningful way.”
A 33% rise in e-commerce sales is a much higher rate than the previous quarter and comes despite the fact that the Jet.com acquisition has now annualised out. “That said, growth is lower than Walmart's targeted 40% uplift. However, we remain confident that digital numbers will improve further, mainly thanks to the investments it is putting into its digital operation.”
Walmart's new Lord & Taylor online store is also set to launch shortly. “Although we believe this will be helpful to Walmart and that it will give the company access to a more premium customer, we caution that Walmart is not a natural destination for higher-priced items, especially in apparel, so there is much more work to be done to shift perceptions. In our view, this will be a successful, but slower burning initiative,” Saunders comments.
All of the investments in e-commerce, along with those made in enhancing stores, services and sharpening prices, have taken their toll on the US retailer's bottomline. Within the US division, operating income fell by 3.1% over the prior year. “As unfortunate as this is, it remains a necessity - especially when Walmart is up against Amazon which is an enthusiastic investor in all kinds of initiatives. Diverting some profit to prudent investments is now a price for survival across most of the retail sector. Walmart has shown an impressive willingness to grasp this nettle.”
Looking beyond the US, the purchase of a 77% stake in Indian e-commerce venture Flipkart is a sign that the company is prudent not least because it gives immediate access to one of the largest and fastest growing retail markets in the world. “Coming hot off the heels from its decision to sell Asda in the UK, Walmart is clearly moving capital from areas of lower return to ventures where it has better long-term growth prospects, at least on the sales line. This is a sensible switch, especially as Walmart will retain an interest in and a relationship with the newly enlarged Sainsbury's-Asda group,” Saunders concludes.
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