Word on Walmart – May 2021

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Walmart Beats Q1 Earning Estimates with Soaring E-Commerce Sales

On May 17, Walmart released its earnings for the first time since the reveal of its CapEx reallocation plan to invest in more digital innovation. This highly awaited release proved to be worth the wait as Walmart flaunted its surprising 6% YoY sales growth with Walmart U.S. e-commerce growing 37% and Walmart International e-commerce growing 49%. This is a successful lapping of high growth from Q1 2020 and shows the continued strength of Walmart’s e-commerce portfolio. Below are other key metrics to consider when assessing the retailer:

  • Membership income increased 12.7%, increasing member count to an all-time high even against free
    trial periods.
  • Consolidated gross profit increased 104 basis points despite heavy e-commerce growth.
  • U.S. sales transactions decreased by 3.2%, while transaction values increased by 9.5%.
  • Walmart International sales decreased by only 8.3% despite a 14.1% decrease in overall size due to divestitures during the quarter, showing its strategic focus in this area.

Our Take on the Opportunities

  • Despite recent talk in the industry about Walmart being displaced as the No.1 retailer in the country, Walmart has proven it will continue to be a leader in the industry both in store and online. With that being said, brands that have not begun to take advantage of the retailer’s traffic are falling more behind each day.
  • Walmart+ is poised to be an increasing threat to Amazon’s Prime membership, with increasing member counts and market position around an omnichannel offer. As Walmart+ continues to grow, it is important for brands to know their options to reach this subset of loyal Walmart customers.
  • Historically, Walmart has seen a continuous cycle of growth in Q4 leading to profitability issues in Q1 led by e-commerce contribution profit (CP) degradation. With that not being the case this quarter, brands should not see the extreme assortment rationalization noticed in previous years. Although we don’t expect Walmart to be as aggressive in dictating and enforcing margins in order to be profitable, brands should have an assortment strategy for each channel in place and a plan for future optimization around profitability and consumer trends.

Source: Walmart Corporate

Walmart’s 2021 Annual Report Presents Road Map for Vendors

After a year of unprecedented growth, change and dynamic shifts in consumer behavior, Walmart’s release of its 2021 Annual Report provides clearer lanes and opportunities for vendors. It showcases not only Walmart’s growth in terms of earnings, but also lays a foundation for what horizons Walmart is looking to.

While EDLP continues to be the cornerstone of its business, convenience and omnichannel-focused strategy dominated innovative next steps for Walmart.

Walmart’s e-commerce Marketplace grew triple digits while the U.S. e-commerce channel as a whole grew by 37%. This creates several basket-building challenges, but the convenience of the channel has helped it become nearly 12% of all Walmart sales. Nearly all of Walmart’s capital expenditures will be shifted from store expansions to remodels and digital infrastructure this year. While we are seeing gains in share across non-food categories, this shift to e-commerce threatens in-store cross-selling opportunities for all products, especially while grocery traffic to stores is continuing to shift online.

Outside of brick-and-mortar and dotcom sales, Walmart’s increased focus on sustainability costs may pose roadblocks to vendors this year. With the retailer’s commitment to being carbon neutral by 2040, suppliers should expect Walmart to take big strides on plans, with the potential of additional costs associated with new regulations.

Our Take on the Opportunities

Top Opportunities for Suppliers in 2021

Walmart+ and Walmart Connect activations

  • For long-term growth and return on investment, engage and invest in quickly growing spaces Walmart is investing in.

Create e-commerce-optimized products and packaging

  • As Walmart’s focus on e-commerce continues to grow, ensure your team is thinking long term about the digital space as it presents different opportunities than traditional brick- and-mortar does.
  • Supply chain capability will be critical to enabling online shopping growth.

Expand the experiential aspect of digital

  • As Walmart continues to explore and invest in innovative and collaborative spaces such as the Cookshop (shoppable, free interactive video hub), TikTok, Telehealth and, most recently, the acquisition of Zeekit, a virtual AI firm, work closely with Walmart Merchants to monitor and execute on up-and-coming channels.

Consistent optimization of on- and offsite brand presence

  • As e-commerce brings the opportunity to showcase brands across seemingly unlimited resources, ensuring content is best in class
    in every instance that consumers interact with your brand will prevent potential brand degradation and continue to drive consumers to purchase onsite.

Sources: Walmart 2021 Annual Report, Walmart Corporate, Walmart Sustainability, Walmart News, Retail Dive

The Future of Product Packaging at Walmart

Over the past few months, Walmart has made several announcements surrounding its initiatives to build a smarter e-commerce supply chain. In the previous quarter earnings release, Walmart announced an incremental CapEx investment of nearly $14 billion to be used for technology and supply chain advancements. While Walmart has not released the detailed plans for this investment, it has tested several technologies to help improve its fulfillment capabilities inside and outside of stores to help optimize the process for fulfilling digital orders. Along with these conversations of automation, Walmart has also implemented an aggressive compliance timeline in its Supplier Quality Excellence Program (SQEP) and rolled out several sustainability initiatives around packaging.

Our Take on the Opportunities

  • With fulfillment automation becoming a larger portion of the business and packaging and label compliance programs rolling out, brands should be paying more attention to how their products are packaged than ever before. Creating a strategy around how to ensure product packaging is optimized for automated e-commerce fulfillment will be crucial to future digital success.
  • When creating e-commerce packaging strategies, brands also need to factor in changing sustainability guidelines that call for the exclusion of virgin plastic and extra material.
  • Along with the logistical factors, customers’ differing shopping habits online vs. in store point toward an aesthetics opportunity. Despite e-commerce having a “long tail” and so-called “endless aisle,” there is a concentrated core of items customers tend to purchase due to visibility and traffic patterns. Making your products stand out onsite with eye-catching packaging is key to e-commerce success.

Source: Walmart Corporate

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