Today, global retailer Walmart reported financial performance for the all-important 2017 holiday fulfillment period and investors were not pleased. Today’s news is yet another indicator of the high growth expectations being placed on online retailers, and the continued challenges in transitioning to a combined online and physical retail fulfillment presence.
For the December-ending quarter financial highlights included:
- Total revenue of $136.3 billion, an increase of 4.1 percent from the year-prior period.
- Same-store sales growth of 2.6 percent while comparable traffic grew a reported 1.6 percent.
- Ecommerce sales growth of 23 percent.
- International net sales growth of 6.7 percent to $33.1 billion.
- Consolidated operating income of $4.5 billion, a decrease of 28 percent.
Wal-Mart executives further acknowledged that efforts to stock holiday related merchandise may have strained capacity to stock everyday merchandise items popular with consumers. CEO Doug McMillon indicated to analysts that out-of-stock items for basic items did occur in the final quarter.
For many large retailers, the above financial results would have likely been met with a positive response, but not so, for Walmart. That was mainly because of the fact that Ecommerce sales growth had been tracking at more than 50 percent growth in the prior three quarters. As we pen this posting at mid-day, shares of Walmart have declined 9 percent on today’s financial performance news.
For the full year, the retailer reported slightly over $500 billion in total revenue, an increase of 3 percent. Revenues in the eCommerce category increased 44 percent for the year. However, consolidated operating income was down 10.2 percent, and excluding special charges, operating income would have been relatively flat.
There in is the current challenge for this global retailer, balancing aggressive investment in online customer fulfillment capabilities while maintaining sales growth momentum in physical stores. Throw-in an aggressive head-to-head price competition with Amazon and other online retailer sites such as Target, and the delicate management balance becomes more evident.
The retailer is further responding to the current full employment effects of a robust U.S. economy, namely that in order to retain workers, wages and benefits have to be raised. The effect of added wage and bonus payments was pegged at $700 million up-front, with additional added employment benefits yet to flow to the bottom line. Walmart continues to initiate added job cuts in corporate and in-store areas, the latest being a cutback in assistant manager roles. The strategy is take from one hand and give to the other.
Fiscal 2019 Outlook
Walmart’s future guidance for the current fiscal year calls for U.S. revenue growth on 2-3 percent. Sales of its eCommerce category were forecasted to grow approximately 40 percent, a tall order given the most recent quarterly setback.
At the same time, the global retailer must also invest in international sales growth. Reuters, citing knowledgeable sources, recently disclosed that the retailer is in talks to acquire a more than 40 percent stake in India Flipkart online site. This is rightfully being perceived as a direct challenge to Amazon in the ongoing battle to gain dominance in what is likely to become the largest online marketplace. The retailer has also announced an expanded strategic relationship with China online retailer JD.com, hoping to boost that online retailer’s effort to compete with Alibaba.
The reality is that the future of retail can be a rather expensive undertaking, especially when the scope involves global scale. Walmart is also continuing efforts to appeal to a broader segment of consumer economic profiles, which adds to investment scope. Returning to 40 plus percent eCommerce growth will require some likely changes in supply chain and fulfillment strategy.
As many retailers discover, rapid growth implies that one cannot neglect the basics of comprehensive inventory management optimized for multiple channels. Neither can it neglect investment in needed human talent in many dimensions, including end-to-end supply chain visibility and agility.
When your presence is tall, expectations are far higher. Amazon, on the other hand, has trained its investors in honing-in on long-term holistic growth and continued market disruption.
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