US Insights

Walmart a Beacon of Growth in the Age of Amazon

Tim Campbell

Senior Analyst

Retail 08.16.2018 / 09:00

WalmartStoreFront

Walmart’s strength can be traced to its strategic approach to its historical competencies.

Walmart’s strong Q2 results paint a picture of mature yet robust growth in the age of Amazon. Total company sales rose 4.2% while U.S. comps soared to their highest level in 10 years at 4.5%. eCommerce comps grew 40%. These numbers did not occur in a vacuum, and Walmart’s current strength can be traced to its strategic approach to its historical competencies, present market landscape, and future opportunity.

Past: Reinforcing the productivity loop

In Q2, Walmart reaped the benefits of rigorously enforcing its longstanding core capabilities of operational efficiency to drive end value for the shopper. Not only did total revenues rise significantly at 3.8%, but Walmart lowered expenses by 19 basis points while raising operating income significantly in its U.S. and Sam’s Club divisions. Walmart’s reinvestment in price leadership and assortment optimization was spurred by investments in back-end automation, employee training, and inventory management.

Present: Reprioritization of markets and formats

Walmart is in the midst of navigating a global shakeup of its formats and international market presence. Q2 saw Walmart’s decision to sell 80% of its Brazilian business to Advent international and the ongoing divestiture of ASDA as it merges with Sainsbury’s in the U.K. Alongside 2017’s sale of Suburbia in Mexico, these moves have taken a heavy toll on Walmart International’s operating income and sales. On a more granular level, Sam’s Club continues to feel the sales pinch from 60 strategic closures earlier this year and the intentional drawdown of its tobacco assortment. However, by choosing to retrench from its underperforming markets and categories, Walmart has reduced present vulnerabilities and freed capital expenditure for markets and locations with more opportunity tomorrow.

Future: A long-term vision for an eCommerce strategy

For all the scale of its brick & mortar operations, Walmart recognizes the importance of eCommerce. Rather than focusing on incremental investments that realize immediate benefits, Walmart is spending vast sums on moves that leave the company well positioned for the challenges of the future. Walmart’s acquisition of Flipkart, for instance, will not be immediately profitable, but it does help unlock the future of Indian eCommerce. In other markets such as China, Mexico, and the U.S., Walmart is focusing on expanding online grocery pickup and delivery and improving customer satisfaction across eCommerce platforms. In the U.S., Walmart’s launch of JetBlack, an AI-enabled, shop-by-text service, extends the company’s reach with new shopper demographics that can enable fresh white space for driving incremental sales.

These elements must continue to work together to prepare Walmart for tomorrow’s challenges. Suppliers can align with these initiatives by investing in eCommerce fulfilment, doubling down on Walmart’s most successful markets and SKUs, and streamlining costs within internal back end operations. A clear vision of Walmart’s strategy can spur a mutually beneficial relationship with Walmart and allow suppliers to more effectively speak to their shoppers.

Source: Kantar Consulting

Editor's Notes

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