FINANCE

Analysis: Walmart on fire online; store refurbishments paying off

This was the quarter in which Walmart started to lap tougher prior year comparatives. In this period of 2017, total revenue grew by 4.2% and comparable sales in the U.S. by 2.7%. Despite these higher hurdles, Walmart has successfully demonstrated that there is significant momentum in its business. Overall revenue grew by a respectable 1.4% (or 2.4% on a constant currency basis) while the U.S. put in another strong performance with total sales up 3.7% and comparable sales up 3.4%.

While the results have been aided by a strong domestic economy, which has increased the purchasing power of many of Walmart’s core customers, there is also a strong element of self-help which has propelled growth. In our view, Walmart has been exceptional at quickly adapting to the realities of modern retailing and its willingness to make investments and foster change have been key to its growth.

Online is one of the areas where Walmart has excelled, as the 43% growth within the U.S. e-commerce business demonstrates. Our data show that over the past 12 months, Walmart has grown its market share in every major online category. Some of this is down to the various strategic acquisitions the company has made, but a lot is also a function of the investments that have been put into the e-commerce business.

The relaunch of the core Walmart.com site is delivering and the improved design, extended selection, and increased range of delivery and pick-up options have been well received. Our tracking data show a rising level of satisfaction with Walmart’s online proposition and, most pleasing, an increased level of traction with younger shoppers. That said, there is more work to do here in making Walmart.com the first port of call for shoppers who are very used to defaulting to Amazon and who are increasingly locked into the ecosystem of the online behemoth.

Making online work for customers has been a key priority for Walmart, but the company is also conscious that online needs to deliver in terms of profitability. On this front, we are impressed with the experimentation on automation and the testing of various last mile solutions for grocery. We believe that Walmart has the skill, financial muscle, and the physical infrastructure to drive profitable online growth in a way that many other retailers, especially grocery players, will struggle to achieve.

Although digital is an important arena in which Walmart must do battle, it has not blinded the company to the vital role of its stores. On this front, the refurbishment of many shops have been well received and have helped to drive up visitation, conversion and spend. While Walmart’s refresh isn’t as radical as Target’s, the remodels are making Walmart a brighter and more enjoyable place to shop – and in which to collect online orders. We also believe that they are helping to elevate and boost categories where Walmart has sometimes struggled for growth, like apparel.

Looking to the near-term future, we believe that Walmart has a very satisfactory playbook for the holiday season. Its customer-centric services, which focus on maximizing convenience for the shopper, will be well received. It will also be able to make gains in categories like toys and clothing, where it has enhanced ranges.

Looking further ahead, Walmart’s place as a dominant force in U.S. retail looks assured. We believe more investments and acquisitions across 2019 will help it remain the leader of the pack.

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