Walmart Can't Be Complacent About E-Commerce
Look at two important numbers in Walmart Inc.'s earnings report on Tuesday, and you could draw different conclusions about the retailer's momentum.
Its closely watched U.S. comparable sales rose 2.6 percent in the fourth quarter from a year earlier -- strong growth after a third quarter that saw the best growth on this measure in eight years.
That data point suggests Walmart's recent hot streak -- built on cleaning up stores, improving customer service, and investing in online shopping -- is continuing full speed ahead.
But another key number, e-commerce sales growth, tells a different story. Online sales at Walmart U.S. increased 23 percent in the quarter over a year earlier. That's not terrible, but it marks a considerable slowdown after three consecutive quarters of at least 50 percent growth on this measure.
Of course, it makes sense Walmart wouldn't be able to keep up the blistering growth that came partly from adding Jet.com to its portfolio. That acquisition is more than a year in the past now, and the e-commerce cool-off largely reflects that. But Walmart CEO Doug McMillon told investors some of the slowdown "was unexpected, as we experienced some operational challenges that negatively impacted growth."
Investors shouldn't panic about this yet. Walmart on Tuesday said online sales growth could be around 40 percent in the new fiscal year, suggesting executives think they can work through the fourth quarter's problems relatively quickly.
But investors are right to be concerned. After all, Walmart is opening relatively few stores in the U.S. this year, so it will depend mightily on e-commerce for overall sales growth. And strong online sales are essential in taking the fight to Amazon.com Inc.
As it tries to kick its e-commerce engine into higher gear, Walmart would do well to concentrate on its grocery business. That's a category where it has already gotten good traction with its in-store pickup program and thus has a good foundation of customer loyalty on which to build.
And as grocery accounted for more than half of Walmart's sales in fiscal 2017, it's the category where it can least afford to get trampled by Amazon.
And lest anyone in the grocery business get complacent, Tuesday brought more reminders of Amazon's grand ambitions in this category.
Amazon announced that eligible members of its Prime program could earn 5 percent back on their purchases at Whole Foods Market if they shop with a Prime Rewards Visa Card. And Albertsons Cos. said it has agreed to acquire Rite Aid Corp., a deal that would let the two retailing behemoths combine their firepower to compete for online grocery and general merchandise customers.
Faster e-commerce growth would be Walmart's surest way to show investors it has the right defenses for these emerging threats.
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Mark Gongloff at firstname.lastname@example.org