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When shoppers become frugal, Walmart flexing its muscles.
Like other retailers, the company Faced with slowing sales as the pandemic-induced boom in spending fades and inflation hits shoppers’ wallets.
However, unlike many of its competitors, Walmart has several key factors that could benefit it: Most of its sales come from food, a category shoppers need in any economy. It has built its reputation on offering low prices. And its vast reach allows Walmart to make money in other ways, including selling ads, providing delivery services, and fulfilling online orders for third-party sellers.
Walmart CEO Doug McMillon acknowledged the challenging retail landscape during the company’s earnings call in February. However, he said its business was “naturally insured”.
“If the customer wants more of something and less of something else, we move our inventory,” he said. “If the economy is strong, our customers have more money, and that’s great. If things are tougher, they look to us for value.”
Top retailer leaders will share the company’s strategy for the year on Tuesday and Wednesday at an investor event in Tampa, Florida.
Here’s a closer look at some of the key Walmart topics that may come up at the investor event:
Consumer health check
As the nation’s largest retailer, Walmart is a focal point for both the industry and the U.S. economy. Investors are hungry for any new clues.
“You always start a Walmart meeting by asking what consumers are doing because they really know best what is going on with consumers,” said David Silverman, a retail analyst at Fitch Ratings. use America and how they spend it”.
Walmart has noticed changes in purchasing patterns. Over the past few quarters, Chief Financial Officer John David Rainey told CNBC that their shoppers have been buying more private-label products and choosing cheaper proteins like peanut butter and hot dogs. Additionally, he said, as customers spend more on groceries and other essentials, they buy fewer conventional goods — a shift that is shaking Walmart’s sales structure. and affect sales at other retailers, including Target.
Walmart shared a cautious outlook for the year, factoring in economic uncertainty and a more informed approach by shoppers. It said it expected Walmart US same-store sales to grow between 2% and 2.5% excluding fuel, in the next fiscal year. The company expects adjusted earnings per share for the fiscal year to range from $5.90 to $6.05, excluding fuel.
That would be a drop from last fiscal year, when Walmart US same-store sales increased 6.6% and adjusted earnings per share were $6.29, Fuel is not included.
Side hustle progress report
Advertisement. Delivery service. Pick and pack items for third-party sellers.
Walmart took a page from its main competitor, Amazon, because it sells services and technology, along with socks and pints of milk. It is expected to provide progress reports at the investor event.
The company has a growing number of side jobs, including Walmart Connect, its advertising business; Walmart Luminate, its data and analytics engine; Walmart+, the Amazon Prime answer and membership program; go local, its delivery service to other retailers; and Walmart Fulfillment Services, a collection, packaging, and shipping service for third-party marketplace sellers.
The positive boost has become important over the past year, as Walmart’s profit margins have come under pressure. Like other companies, the big-box retailer is dealing with higher labor, supply chain, and raw material costs. All of its newer businesses, such as advertising, have higher profit margins than the traditional retail business.
Walmart is also more flashy in spreading the word about its new businesses. Two years ago, it invited Seth Dallaire, an Amazon veteran and former chief revenue officer for Instacart, to oversee newer businesses as Walmart’s chief revenue officer.
At industry conferences, it hosted parties, handed out tote bags and other branded items, and paid for large display stands. It has also reversed roles with suppliers, as it knocks door-to-door trying to sell to them.
E-commerce growth plan
Part of the investor agenda? Provides a glimpse into Walmart’s e-commerce future.
The retailer will probably showcase how they are increasing their online sales and trying to turn a profit for them.
Thanks to a boost from the pandemic, e-commerce has become a larger part of Walmart’s business. Online sales accounted for about $53.4 billion — or nearly 13% — of Walmart US′’s total net sales for the last fiscal year, which ended in late January, according to company filings. That’s a huge jump from $15.7 billion, or about 5% of Walmart US′’s total net sales in 2019.
Walmart has also made inroads into e-commerce in other ways. Just this week, the retailer launched a new look for the website and its apps. Some of the key perks of Walmart+, its membership program, are free shipping and free home delivery on online orders.
The ease of shopping online along with popular products at lower prices has given Walmart a way to bypass regional grocers and smaller stores, said Silverman of Fitch Ratings.
“Historically, there’s always been a trade-off,” he said. You pay less at Walmart, but you have a worse customer experience.”
However, when shopping online, he added, customers will end up receiving the same brand of ketchup, laundry detergent or tissue in a similar brown box. And from Walmart, it’s usually cheaper.
“The focus on value may resonate more with Walmart,” he said. “You’re giving up less on customer experience over time.”
Shoppers with higher income
For Walmart, the wave of suburban migration caused by the pandemic and the inflation shock created an opportunity: Attracting customers with higher wages and higher disposable income.
Chief Financial Officer John David Rainey told CNBC that wealthy shoppers are increasingly turning to Walmart for groceries. He said about 75% of the increase in market share in the food sector came from households earning more than $100,000 a year in both the second and third fiscal quarters.
He said at a conference in March that about half of the increased market share came from high-income consumers in the quarter ending in late January.
Investors want to know how Walmart plans to not only attract more financially stable customers, but also retain them. Doing that can help retailers, especially as food stamp benefits shrink and tax refunds come to light.
The company has modified in-store elements that might appeal to more upscale shoppers. For example, it has launching new store designs in some parts of the country offer more trendy offerings, such as more fashionable exclusive clothing and home decor brands.
It has also expanded convenient online options, including curbside pickup, faster home delivery, and its InHome refrigerator delivery service.
According to Rick Watson, CEO of e-commerce consultancy RMW Commerce Consulting, as inflation cools, Walmart may have to fight the tendency of some shoppers to look to other websites and stores. rich.
However, he said, the shopping habits formed by inflation may well persist: “If the prices are good, why would you come back?”
