Shoppers are back in the aisles, even as Walmart commits to drilling down further on digital and omni-channel

By Stuart Lauchlan

May 19, 2021

Audio version

7 min reading

We see encouraging signs that our customers want to get out and shop.

That’s Doug McMillon, CEO of Walmart, the world’s biggest retailer, echoing sentiments expressed yesterday by his counterpart Jeff Gennette of Macy’s. Wishful thinking or an encouraging sign of some kind of return to ‘old school’ retail in the Vaccine Economy?

Time will tell, but for now Walmart’s just turned in another strong quarter with sales up six percent year-on-year to $93.2 billion, while operating profit grew 27% to $5.5 billion. Of note, e-commerce sales grew 37% year-on-year, essentially around the pre-pandemic level of growth, but well below the 74% growth rate for the same period last year or the high of 94% seen in Q2 last year as COVID lockdowns seriously took hold.

So, is this a normalization of business? According to John Furner, President & Chief Executive Officer, Walmart US, the shift back towards increased footfall in-store started to show up in late March and things “definitely changed” in April:

I think it was a combination of people getting back out in comparison to last year, but also some normalization in terms of frequency of food that's purchased, specifically within channels, strong growth between all three. In the US, the total comp was 6%, including e-commerce growth of 37%. And then e-commerce growth is a mix of, what's being shipped to people's homes from fulfilment centers or stores and inclusive of pickup.

As it stands today, global e-commerce penetration now represents over 12% of total company sales. But does it make a profit yet? That’s a question that remains definitely fudged for the time being as Furner says:

We feel good about the drivers of the e-comm profitability, which is contributed profit rates and that would be gross margins less the cost of shipping. We also feel good about the alternative revenue streams that are included in e-commerce, which are things like the marketplace, fulfilment service…On the breakout, we actually are not breaking out the difference in stores and e-comm because it has just become so blurred as we transition to an omni-business.

We have our merchants that are overseeing all channels by category. Stores are acting as stores, they act as pick-up centers and in some cases fulfilment centers. We have fulfilment centers acting as fulfilment centers which go direct to home. And at times they ship to a store so the inventory can be consolidated with an order and then put into our last mile network. So it's just not possible for us to break those out given how blurred the lines have come.

More digital

That said, the company retains its focus on expanding its digital profile and its offerings. Gennette points to the acquisition of Zeekit as a case in point:

This start-up combines fashion and technology through a dynamic virtual fitting room and underscores the desire to grow our apparel business aggressively. We continue our work to build a larger health and wellness business and help customers and associates have a better experience when it comes to their healthcare.

Walmart also recently announced its intention to acquire online travel firm Cleartrip - which has to indicate faith in a return to some form of normality! - but it’s in the health and wellbeing space that some of the most interesting moves are taking place. As diginomica noted last week, this is a sector that’s ‘had a good war’ during COVID and one with enormous potential for digital growth even as the Vaccine Economy takes shape.

McMillon cites the acquisition of MeMD as “a big step in that direction” towards building an omni-channel health and wellness business: 

I think the pharmacy business has performed really well considering everything our pharmacists have been doing. It's been an incredible challenge to do everything that they've done since the pandemic started, including all of these vaccinations that they're doing. The ultimate destination does look like an omni-channel destination where we'd leverage those historical businesses together with new healthcare services and the digital front-end. You can imagine a future where we'll be able to reach customers on their devices in their homes to help them think about their healthcare in terms of what they eat how much they move and then what types of health care services they need and where they get them.

I think you can see us building together those capabilities that would help people have access to care more of an outcomes-based healthcare system, great value, accessibility and serve a lot of people that need to be served and also end up with a really good business that fits together well with a large food retailer. We've just been working through that strategy executing the pieces. And if you look back at the CareZone acquisition, this latest acquisition of MeMD, you can see us adding some capabilities in addition to those that we're building on our own.

It’s a theme picked up by Furner when he adds:

I just want to reiterate excitement for the idea of an omni-channel healthcare solution for customers and Walmart together. Our pharmacists and our pharmacies have performed very well in the last year given all the challenges they've faced. They've opened up curbside delivery, delivery to home. We've got central fill pharmacies now helping assist with cost and efficiency on the service suite that they offer. It's of course different by state, but the way our teams jumped in and found ways to help get the country vaccinated has been nothing short of amazing. I was in a store here locally last night and just seeing a number of people be able to walk up and get their vaccine is very encouraging.

The market changed last year…a large part of healthcare shifted to digital last year and the entire industry embraced that. So this acquisition of MeMD to enable relationships with customers on their device, in their home and be able to execute service care with our pharmacies and clinics on the backside of that is a really exciting prospect and it's a big part of our flywheel going forward.

My take

2021 brings its own unique challenges and uncertainty. But overall, my optimism is higher than it was at the beginning of the year for several reasons….The second half will likely have more uncertainty than a normal year, but we like our position. Our stores are getting stronger and our e-commerce capabilities are expanding as we continue to grow. Customers will decide how and when they want to shop and they will find us ready whether they want to shop in store, pick up an order or have it delivered.

So says McMillon with commendable pragmatism. An immediate challenge for Walmart will be to manage the shift that will undoubtedly occur in grocery shopping. While pureplay grocery outlets, like Kroger, have seen hefty increased in online shopping hold steady to date, Walmart’s actually slipped back a little bit - not much, but in an increasingly febrile market with Amazon breathing down your neck, no ground is safe to be given away.

But what will be really interesting to see is if the oft-repeated cliche about Walmart’s physical proximity to most of America’s population comes back into play as the asset it once was. The omni-channel shift’s seen during COVID aren’t going to go away entirely - the cork is out of too many bottles on that front - but will a trip to Walmart come to be one the signs that things are getting back to some kind of normal?