Will doubling down on e-commerce pay dividends for Walmart?
At last week’s investor meeting, Walmart revealed it would be slowing new store openings while increasing investments in e-commerce and digital initiatives.
Walmart management plans to open 130 U.S. stores this year, down from a forecast calling for 135 to 155 openings. For 2017, the company is only planning 55 U.S. openings. In 2015, 230 U.S. stores were opened.
Capital expenditures are targeted at $11 billion this year and next, similar to amounts in 2015. But the spend will shift more to toward online efforts, technology and store remodels.
Instead of new stores, comp sales and e-commerce are expected to drive top-line growth. In August, Walmart reported its eighth straight quarterly increase in comps helped by aggressive pricing, investments in wages to boost in-store service levels, improved in-store positions and upgrades in grocery.
Walmart’s online sales rose 11.8 percent in the second quarter but are expected to accelerate to 20 percent to 30 percent growth in the second half, supported by rapidly expanding third-party sellers on Walmart.com, adding more products overall to Walmart.com, aggressively marketing Walmart.com and the acquisition of Jet.com.
Said Walmart’s CFO Brett Biggs, “Over the next couple of years, given the investments that we’re making, we’d expect ecommerce sales growth to be at the top of that range or even above that 20 percent to 30 percent range.”
Walmart.com will incorporate some of Jet.com’s technology that lowers prices in real time. The retailer will also invest more in mobile pay and online grocery.
Walmart lowered its earnings targets somewhat for coming years in part because of its purchase of Jet.com. The company projects Flat earnings for 2017 and growth of five percent in 2018. Previously, a modest increase was projected for 2017 and growth of five to 10 percent in 2018.
Some analysts saw the stepped-up investments as necessary to compete with Amazon. Wrote Simeon Gutman, analyst at Morgan Stanley in a note, “Omni-channel transformations are costlier and last longer than retailers expect.”
Others were more skeptical.
“I get that you have to be in e-commerce, but you are chasing the 800-pound gorilla,” Edward Jones & Co.’s Brian Yarbrough told Bloomberg.
- 2016 Investment Community Meeting – Wal-Mart Stores, Inc.
- Walmart Outlines Plan to Win with Customers, including E-commerce Acceleration, at Meeting for Investment Community Today – Wal-Mart Stores, Inc.
- Wal-Mart Expects Profit Pressures, Fewer New Stores – The Wall Street Journal (sub. required)
- Walmart pulls back, slows U.S. store openings – USA Today
- Wal-Mart plans to slow new store openings, invest in online – Reuters/The Seattle Times (tiered sub.)
- Wal-Mart makes risky bet it can loosen Amazon’s grip on shoppers – Chicago Tribune
DISCUSSION QUESTIONS: What do you think of Walmart’s shift focus away from new stores and toward e-commerce and digital initiatives? What do you see as the potential payoff and risks in such a move?