After solid Q2, Walmart to continue focus on tech, customer experience
BENTONVILLE, Ark. — Walmart U.S. on Tuesday reported second quarter net sales of $74 billion, up 4.8%, representing a 1.5% lift in comparable store sales and a 1.3% lift in traffic. Neighborhood Market comps increased approximately 7.3%, with strong growth from new stores. Across Sam's Club, membership income was up 6%, Walmart reported. Beyond performance across its brick-and-mortar stores, Walmart's e-commerce sales globally increased approximately 16% on a constant currency basis.
President and CEO Doug McMillon told analysts Tuesday morning that they are taking the company’s Q2 performance as a sign that slowly but surely, Walmart is getting its groove back.
“I shared an article from Fortune magazine [with Walmart market managers] that I keep in my office titled ‘Can Walmart Get Back the Magic?’,” he said. “It’s a pretty strong indictment of our future, and the fun fact is that it was written in 1996. Just as it was in 1996, we will win the future of retail if we make the right choices as a business.”
Walmart plans to win by leveraging technology in the fight for the consumer's wallet, both online and in-store, he said. That means delivering better customer service. Walmart increased associate wages in the first quarter across its store base, and in the second quarter is adding a new level of store management — department managers — to increase its focus on running better-managed stores.
On the technology front, Walmart's investments not only improve out-of-stocks and convenience for the end consumer but also drive home the everyday low price message that Walmart is well-known for.
In July, Walmart.com introduced a “Dare to Compare” event that showcased the company’s ability to deliver a wide assortment at better prices.
“We were able to use our technology platform and sophisticated pricing algorithms to help us track and deliver lower pricing than competitors,” noted Neil Ashe, president and CEO global eCommerce for Wal-Mart Stores. “Given that we’ve tripled our assortment in the past three years, we had more items for customers to shop. Customers could then choose how to get their purchases in the most convenient way for them,” he said. “It led to our biggest day of the year so far for same-day pickup. The flexibility of our new platform allowed us to move very quickly, and the new site delivered a better, faster shopping experience to customers. And, those customers who were shopping on mobile devices had an improved experience thanks to the responsive design we rolled out in the quarter.”
Walmart's investments included developing a responsive web design that's optimized to whatever device is in the consumer's hands, enhancing store search capability and opening two new automated online fulfillment centers (each larger than 20 football fields, Ashe said) with two more on the way. That improved back-end delivery capacity should be a significant point of differentiation come holiday time, Ashe said.
But Walmart is still focused on everyday low price.
“We’ve reduced supplier marketing funds that have traditionally offset a portion of our advertising expenses, as we work towards better product costs,” Greg Foran, president and CEO, Walmart U.S., said. “This will translate into lower prices for our customers. As a result of this reduction, we’ve lowered our second quarter print advertising count from 20 pieces last year to just 4 pieces this year,” he noted. “Moreover, since June, we’ve been working on amending terms and allowance agreements with our suppliers, driving consistency and simplification across our business.”
“[Our customers] have always counted on Walmart to have great prices,” McMillon said. "Now, we’re building their trust with better in-stock and delivering an enjoyable shopping experience."
“Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it's reflected in our comps and revenue growth,” McMillon said. “In this case, our desired changes require investments, which are pressuring earnings this year. We're confident that our strategic plan will create robust sustainable growth for shareholder returns over time.”
Even with that confidence, Charles Holly, EVP and CFO of Wal-Mart Stores, noted, “Operating profit will be pressured for the remainder of the year, due to continued investments in store associate wages and additional hours, as well as headwinds from pharmacy reimbursements and ongoing shrink, primarily in Walmart U.S.”