Benzinga
Can $ 14 billion lead Walmart to e-commerce profitability?
This is an excerpt from Monday (22/02) point of sale supply chain newsletter sponsored by ArcBest. Walmart (NYSE: WMT) reported fourth-quarter earnings last week that fell short of Wall Street expectations, despite registering 8.6% same-store sales growth. This is a huge problem for the size of a Walmart company and is by far the biggest growth among comparable stores in the past 10 years, more than double the next growth rate of close to 3.7% in 2019. But Walmart shares sold strongly after earnings were posted because Walmart costs were well above expectations (totaling $ 1.1 billion in COVID-related expenses in the fourth quarter only) and the company directed sales to moderate this year. Here are the highlights: (Data: Company Archives) Walmart and other retailers in general have benefited greatly from pandemic spending trends. I don’t have to spend a lot of time explaining that Walmart started the year with Americans piling up household items – everyone remembers the toilet paper fights. I don’t even need to explain why Walmart maintained extremely strong same-store sales growth during the year – you weren’t eating out either. In addition, Walmart was there to fulfill many of the domestic consumption habits that developed while we were stuck at home. Do you need a table, TV, computer screen, air fryer, bicycle or anything else that can keep you entertained? Walmart has that, too. And the investments that Walmart made in the last decade to boost its online businesses, such as sidewalk pickup and fast delivery, meant that customers could buy almost anything contactless if they wished. In 2020, online sales shared the continued momentum of goods in general, while grocery collection and delivery benefited from the Walmart scale and continued strong execution in contactless service options. But growth is slowing sharply, which should come as no surprise. A Walmart-sized company (or Target or Home Depot) cannot increase online sales by three digits forever. The pace of deceleration in the growth rate of e-commerce points to some challenges it will face as the winds in favor of trends in the global health crisis weaken. American spending will undoubtedly return to a historically normal level of services when vaccinations are widespread and the economy reopens fully. We have seen evidence of this in countries with better control of the virus, such as China. At the opening weekend of the Lunar New Year, China destroyed the previous weekend’s box office record. Despite cinemas operating at 50% or 75% capacity, IMAX achieved a 45% increase in sales this year during the record opening weekend of 2019. People are eager to do everything that COVID prevented them from doing , and all of these things happen outside Walmart’s doors. So, what is Walmart doing? Investing. Heavily. Supply chain and logistics. After adding $ 40 billion to sales in 2020, Walmart feels it is at least a year ahead. CFO Brett Briggs believes that the company needs to “lean more aggressively in the main markets with greater capital and service capacity, supply chain, automation and technology”. Walmart is under pressure to turn prosperous parts of its business into moneymakers. Walmart’s e-commerce has made dramatic gains, but has yet to make a profit. Online services that have gained popularity, such as sidewalk pickup, require additional labor as employees select and package orders. This translates into higher labor costs that Walmart has not passed on to its customers, especially taking advantage of the convenience of shopping online. “The change in retail has accelerated in 2020. The resources we built in previous years have put us ahead and we are going to continue ahead. Our business is strong and we are making it even stronger with investments aimed at accelerating growth. This is a time to be even more aggressive because of the opportunity we see before us, “said CEO Doug McMillon at the Walmart virtual investor community meeting.” The strategy, the team and the capabilities are in place. We have a good time with customers and our financial position is solid. “Walmart is increasing its capital expenditures this year by laying the seeds for future online profitability. Briggs pointed to a new infrastructure, including service capacity, supply chain supplies, automation and technology, which will allow WMT to expand the e-commerce assortment, optimize stock levels and product placement, allowing the company to reduce shipping time and cost. (Video: Walmart) // Watch the video Walmart has embarked on dozens of state-of-the-art technology pilots, including drones and autonomous delivery, all with the goal of increasing speed and reducing the costs of conducting e-commerce, but its biggest experiment was its center model local distribution system (LFC), launched in Salem, New Hampshire, in 2019. Walmart announced in January that it plans to scale its LFC model, powered by an impressive robotic system called Alphab ot, for “dozens of locations, with many more to come. “(I detailed WMT’s service strategy compared to Kroger’s last month. Read here.) We don’t have strict cost estimates for Walmart’s LFC constructions, but we can be sure of much of the investment in” capacity service, supply chain, automation and technology “to revolve around the Alphabot and LFC expansion. In all, Walmart is targeting about $ 14 billion in capital expenditures this fiscal year, at a rate of $ 10 billion to $ 11 billion as it invests in the supply chain, automation and improvements in the customer experience. Recently, there has been a significant change in Walmart’s strategy. The company now doesn’t just want to sell groceries, clothing and almost everything else, it wants to leverage its greatest asset – its reach – to pursue new business opportunities, including increasing its advertising business, becoming a major healthcare provider and continuing to develop its financial services based on in the recent partnership with Ribbit Capital. With this strategy, Walmart is recognizing a harsh reality: retail may not be enough to boost its future. But that does not mean that Walmart does not expect revenue and profit growth in the near future. Nor does it mean that Walmart has lost focus on its livelihood business. Quite the opposite. Walmart knows that it gained market share in 2020, in part by subsidizing the growth of online sales by not passing on additional costs to consumers. Now the company is focused on adjusting and iterating the services that Americans fell in love with in 2020, while continuing to improve the store experience. The beauty is that Alphabot and LFCs do both. Alphabot can select and pack orders 10 times faster than humans and removes the vast majority of pickers from the floor, leading to less congested aisles and less empty shelves. Walmart will continue to innovate with pilots, partnerships and technology acquisitions as it experiments with different service methods, freight networks and delivery strategies. But LFCs are no longer an experiment and their first act was very successful. It’s time for the main stage. Did you like what you read and want more news and insights on e-commerce and retail supply chain? 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