Retailers Warned To Take Note Of Walmart Pain
Australian retailers are being warned to take note of what is happening at Walmart the worl’s biggest retailer whose shares tanked 10% overnight over concerns that Amazon is hurting the mass retailer.
Walmart shares suffered their biggest percentage fall for more than three decades after reporting disappointing online sales figures for the Christmas period.
Observers claim that the changes that Walmart is making to achieve its ambitious target should be taken note of by retailers such as Harvey Norman, JB Hi Fi, The Good Guys and Bing Lee.
Despite online sales being 23% higher in the three months to December it was not good enough for Wall Street.
The reason was that this was less than half the growth recorded in the previous quarter and lower than in the same period of 2016.
Shares in the world’s largest retailer were quickly marked down 10% to $94.11.
The retailer said its online revenues totalled $11.5bn last year, but it lost money on those sales. Chief executive Doug McMillon said e-commerce losses would be “about the same” for 2018.
He told analysts the company was making progress in its efforts to compete with Amazon and other competitors.
“We’re confident in our strategy to transform the company,” Mr McMillon said. “It’s really about providing more convenience to customers.”
Late last year Walmart signalled a big strategic shift that saw the retailer try to capitalise on its well-known brand by concentrating its marketing spend on attracting customers to its flagship Walmart website.
At the same time, it moved to reduce how much it spends on some of its more recently acquired retail sites, such as Jet.com, which cater to higher-income urban shoppers.
As Walmart’s chief executive Doug McMillon explained overnight : “When you get out to Oklahoma, the middle of the country, it just makes more sense to invest in that [Walmart] brand.”
This strategic shift to exploit its national brand recognition makes huge sense given that research shows that some 95 per cent of US consumers either shopped at a Walmart store or on its website in 2016.
The second big lesson that Walmart offers local retailers is that it is best to be candid about the mistakes that will inevitably be made as they learn the online ropes.
Walmart freely admitted that its sales suffered in the latest quarter because although it crammed its warehouses with holiday merchandise such as electronics, toys and gifts, it failed to stock enough everyday items, such as toilet paper.
“We’re learning something new,” McMillon explained. “E-commerce has not been our historic competency.”
But the third – and most chilling –lesson from Walmart’s latest earnings is that the growth in online sales will inevitably erode retailers’ profit margins.
Even though online shopping still makes up only about 4 per cent of Walmart’s $US500 billion in annual sales, the battle with Amazon is taking a toll on the retail giant’s profit margin, which dropped by 61 basis points in the latest quarter.
Analysts expect the squeeze on profits to continue as Walmart continues to cut prices in its ongoing battle for market share with Amazon.
It plans to spend more on Walmart.com and cut back on marketing for its Jet.com site, which aimed at younger and better off shoppers. Walmart paid $3.3bn to buy Jet.com in 2016.
While sales at Walmart’s US stores rose by a better than expected 2.6% in the fourth quarter, net profit sank 42% to US$2.2bn.