Walmart, Retail Dive's 2019 Retailer of the Year, has risen above its rivals during the COVID-19 pandemic, at least so far.
Sales in the first quarter soared: total revenue was up 8.6%, or nearly $11 billion, to reach $134.6 billion, U.S. comparable sales were up 10% and U.S. e-commerce rose a whopping 74%. The retail giant has spent the last few years gobbling up e-commerce pure-plays from Jet to Modcloth (winding down the former, selling off the latter and mum about most of the others), and has told Retail Dive that was an effort to appeal to new customers. But it has been the pandemic, rather than those attempts, that seems to have attracted consumers that may not have previously thought to shop there.
"During the pandemic, customer loyalty went out of the window as consumers shopped around much more ... in order to find the supplies they needed," GlobalData Retail Managing Director Neil Saunders told Retail Dive in an email. "This was very beneficial to Walmart because, as the largest grocer with a massive footprint, it became a destination for all kinds of shoppers. This included many people who don't usually visit the store much for groceries."
Thanks to its many stores — the company says that 90% of Americans live within 10 miles of one — and its advanced in-store pickup services, Walmart was able to overshadow Amazon early in the quarter as the pandemic scrambled both supply and demand. As the e-commerce giant, with a dearth of brick and mortar, scaled back its one-day Prime delivery promise and tamped down its assortment, Walmart leveraged its many locations as it began shipping from 2,500 stores on a temporary basis, up from 200, added time slots for pickup customers, and expanded the pickup window, according to a July 8 note from Telsey Advisory Group.
That helped differentiate it from Amazon, which had set expectations high a year ago with its unveiling of one-day delivery, even though Walmart encountered some of the same issues with its fulfillment centers, according to Jason Goldberg, chief commerce strategy officer at Publicis Communications.
"I'm not sure it's fair to say that Walmart out-executed Amazon — both executed well and both had stumbles," he told Retail Dive in an interview. "Walmart benefited from being the second most visible online retailer — the one place Amazon is clearly beating Walmart is on that. Both Walmart and Amazon's shipping from the fulfillment center slowed down, but Amazon's answer was, 'You have to wait,' while Walmart's answer was, 'Come to the store and pick it up today.' So Amazon got a lot worse press than Walmart."
Still, Walmart.com, more than the company's stores, may be poised to attract customers wealthier than those in its traditional base, something it has struggled to do so far, Saunders said. "While Walmart's e-commerce has grown strongly, it has traditionally been weaker in converting middle and higher income Americans," he said. "The pandemic pushed a lot of people to Walmart's online site and many will likely continue to use the service going forward. One of the advantages of online is that, unlike the big-box store ambience, it is not off-putting for those who desire a more refined shopping experience."
There's never a good time for a pandemic, which this year has threatened health and caused death, pushed the economy into a recession, devastated employment and roiled retail. Nevertheless, it has helped Walmart and other big players, according to Goldberg.
"Covid created an opportunity," he said. "Walmart probably did get new customers by reaching a customer that they haven't been able to catch. But that's probably not a huge cohort."
Walmart unwittingly set itself up well for that opportunity by broadcasting its first Superbowl ad, touting its pickup services, just before the outbreak began its disruption, according to Keith Anderson, Profitero senior vice president of strategy and insights.
"They got click and collect ready, then had this huge marketing campaign," he told Retail Dive in an interview. "In that sense, they've really solidified loyalty with existing shoppers. What I really wonder about now is, it's going to be such an interesting back half of the year and next three years."
Will they stick around?
Telsey Advisory Group analysts, who met with Walmart's investor relations team earlier this month, believe that Walmart will continue to grab market share this year and beyond, thanks to its investment into its operations, both online and off.
"Overall, we continue to believe the company remains among the few retailers that will prove successful in operating an efficient, fully integrated omni-channel model, given its strong focus on the customer, ability to leverage talent, technology, and vendor relationships, and solid financial flexibility," Telsey analysts led by Joseph Feldman said in emailed comments. "Moreover, we expect Walmart to develop a broader ecosystem, including digital payment and advertising, to drive growth beyond retail."
The hope for a pandemic is that it doesn't last, but that could be the same for the opportunities it has ushered in. It's not likely that all the new customers who drifted to the retailer in recent weeks will stick around, other analysts say.
"Some of these people will convert into more regular Walmart shoppers, however, most have already started to revert back to normal habits now that panic buying has subsided," Saunders said. "The ones who stuck around were likely pleasantly surprised by some of the in store improvements Walmart has made to its shops. However, for a lot of people — especially those who shop at Whole Foods or Trader Joe's — Walmart's overall proposition is too misaligned with what they want from a shopping experience."
The data doesn't support a large-scale consumer shift toward Walmart, even online, according to Profitero research.
"I think there is a positive story about Walmart really cementing itself around online grocery and click and collect, and continuing to establish itself as a challenger to Amazon," Anderson said. But any market share that goes to Walmart from that is likely to come at the expense of smaller, independent players more than Amazon, he also said.
A new loyalty play as margins get crushed
Walmart's top-line strength in the first quarter was undermined by the high costs of online and ominichannel retail that are all the more stark for a retailer selling low-margin goods like groceries. The company in a May press release said that its first quarter "consolidated gross profit rate declined 66 basis points, primarily as a result of the carryover of investments in price from last year, a shift in the sales mix to lower-margin categories and channels as well as some markdowns in general merchandise."
The company also said it hired more than 235,000 new associates during the quarter as it tried to meet "unprecedented" demand. But it's not just demand: By offering delivery and to a lesser extent pickup, Walmart has to do several tasks that for most of its existence have been completed by its customers, notes Profitero's Anderson.
"E-commerce is generally less profitable than the shopper building their basket and driving it home," he said. "In any e-commerce model you're shifting labor and equipment from the shopper to the retailer. In a traditional brick-and-mortar shopping model, the shopper picks and packs, using their own car and fuel. So as e-commerce has become a bigger percentage of the total, it puts pressure on the retailer."
Enter Walmart+, a new loyalty program "coming soon" that reportedly offers unlimited same-day delivery without a per-delivery fee for those who pay $98 each year (or $12.95 each month). Telsey analysts describe the program as also including "general merchandise, discounts on fuel at Walmart gas stations, and early access to product deals." Walmart didn't immediately respond to Retail Dive's request for more information about this effort.
That could help offset some of the added cost of e-commerce, especially for its grocery customers. But it also interferes with Walmart's longstanding "always low prices" promise, which Telsey analysts had highlighted as a commitment that "should allow the company to solidify its relationship with customers and make Walmart a long-term winner as a low-cost provider, even though the company may have left some market share and profit on the table."
There's a "strong argument" in favor of a program like Walmart+, Anderson said. "Mitigating the challenging unit economics of digital retailing and aspiring to lock in households to memberships make sense," he said. "That said, at this point I have more questions than answers."
In addition to whether the program is compatible with Walmart's everyday low prices strategy, those questions include whether Walmart+ can overcome "membership fatigue," (in light of how many consumers already hold memberships at retailers like Costco and Walmart's own Sam's Club, with Profitero data suggesting that "roughly half of routine Walmart shoppers" are already paying to be Amazon Prime members), what it means for Sam's Club, and how suppliers might be expected to help shape the program, Anderson said.
What's more, because Walmart hasn't built an ecosystem akin to Amazon's, the membership functions "more like a card or coupon club that you can buy into for $98/year, with the aim of inviting customers to get closer to the Walmart brand," Frank Kenney, director of market strategy at integration platform Cleo, told Retail Dive in an email. "But in and of itself, this is really nothing all that new."
While a "great move," it's likely to appeal to Walmart's existing customers, rather than many new ones, according to Matt Sargent, principal at Sargent Up North. "With Covid, Walmart's base has become rapidly more interested in grocery delivery and Walmart's digital experimentation and infrastructure investment allows it to address this demand with Walmart+," he told Retail Dive in an email. "From a competitive perspective, I don't suspect that this will impact players like Target, Amazon, or Trader Joe's, rather this will impact value players like Aldi."
If there are some signs that Walmart may be going after Amazon's Prime members, there are also signs that Amazon is seeking to gain more sales from those who could be Walmart customers. The e-commerce giant, for example, has worked to cater to consumers less wealthy than the typical Prime customer, including college students, the underbanked and beneficiaries of federal aid programs. But neither play may be wise, for either retailer, according to Anderson.
"It does appear that Walmart and Amazon are drifting in the other's direction membership-wise," he said. "I wonder if 18 to 24 months from now they'll both realize the challenge of optimizing for members without alienating non-members, and retreat to their corners."
However many new customers Walmart may have attracted to its stores or its website in recent months, it is set to emerge from the pandemic stronger than before, according to several analysts.
"Overall, the pandemic has helped Walmart," Saunders said. "Before the crisis it was the nation's retailer and that position has only become more entrenched."
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