Walmart online sales up
More resources going to website efforts; stock takes a jump
Walmart Stores expects U.S. e-commerce sales to surge 40 per cent in the next fiscal year as its online investments allow the retail giant to play catch-up with Amazon.
The company also plans to add 1,000 online-grocery locations — roughly double the current number of sites, which help fill orders from customers buying their food on Walmart.com. Total sales, meanwhile, are expected to grow at or above three per cent, the retailer said as part of a forecast issued ahead of its shareholder meeting on Tuesday.
The upbeat guidance triggered the biggest rally in Walmart’s shares in more than a year, lending evidence to the view that its company-changing bet on e-commerce is beginning to pay off. Chief executive officer Doug McMillon has channeled more than one-third of the business’s capital spending budget into digital initiatives — like specialized e-commerce distribution centres — up from just 20 per cent a few years ago.
“It is clear that Walmart intends to continue to turn up the heat online,” Moody’s analyst Charlie O’Shea said in a note. “We still believe Amazon’s lead in online retail is insurmountable; however, Walmart continues to widen the gap between itself and all other brick-andmortar retailers.”
The stock climbed as much as 4.9 per cent to $84.46 on Tuesday, the biggest intraday surge since May 2016. The gain follows a 17 per cent increase this year through Monday’s close.
Walmart’s investments in e-commerce have already helped boost sales. The company expects to reach U.S. online revenue of $11.5 billion this year. The division saw increases of at least 60 per cent in the past two quarters, four times the growth rate of the broader e-commerce sector.
Walmart has introduced a simpler way to reorder products bought frequently, free shipping on orders of $35 or more, and discounts on thousands of items purchased online and picked up at a store.
But the online push has come at a cost: Profit margins on online orders are narrower than those for in-store sales, due to fulfilment expenses. In the second quarter, Wal-Mart’s gross profit margin narrowed for the first time in two years.
The company also is teaming up with Google to let shoppers order by voice, and it said this week that it’s making the returns process simpler and faster for customers who use its mobile-shopping app. It’s also rolled out curbside pickup of online grocery orders in about 1,000 of its U.S. stores, putting it way ahead of rival Target, which only offers the service for nonperishable items in its hometown of Minneapolis. Walmart has said that in some markets, the online grocery offering brings in customers who’ve never shopped at the retailer before.
As more resources go to its web operations, Walmart has significantly slowed down its pace of new store development. The retailer will open fewer than 15 supercentres next fiscal year, down from about 35 additions in the current year. The Bentonville, Arkansas-based company will also develop fewer than 10 grocery-store-sized Neighbourhood Markets, which have been a key driver of growth in recent years — and a bulwark against the encroachment of German discounters Aldi and Lidl. That represents a slowdown from about 20 this year.
Outside the U.S., Walmart expects to open about 255 new stores, with a focus on Mexico and China.
“We have good momentum in the business,” McMillon said in a statement. “We’re executing our strategy and moving with speed to win with the customer, who is more connected than ever.”
Online sales still account for a small percentage of Wal-Mart’s revenue, and no one expects it to overtake Amazon in e-commerce orders. That company generated the majority of its roughly $136 billion in sales from online shopping last year.
In the second quarter, 62 per cent of all U.S. internet users visited Amazon, a “remarkably high number,” according to Wells Fargo analysts, illustrating just how deeply the company has penetrated the online market.
But Walmart’s investments should help the company maintain its lead in the grocery market, according to Moody’s O’Shea.
Walmart has “unmatched physical resources, including stores and supply chain, and in the process is providing consumers with a compelling online alternative to Amazon,” he said.