How Walmart plans to build a new customer-centric flywheel

Date : 19 February 2021

Stewart Samuel

Program Director - Canada

In an update for analysts, Walmart has outlined its capital expenditure plans for the year ahead and the continued transformation of its business.

Uniquely Walmart

Walmart’s president and CEO, Doug McMillon, struck an upbeat tone in outlining his vision for the company. Building on the momentum of 2020, the retailer plans to accelerate its strategy to deliver long term growth. It’s aiming to dial-up its innovation and move at speed and build a new customer-centric business model, designed with the customer in the centre. While its EDLP and EDLC approach, along with its omnichannel capabilities and Walmart+, will be the cornerstones of this new model, it will include developing more diversified profit streams, repositioning to be in new businesses and exiting some geographies. Through this, the retailer will look to deepen its customer relationships though further ecommerce developments, Walmart Health and financial services.

“Over time, we believe the big winners of retail will be those that deliver a unique, inter-related ecosystem.”

Source: Walmart

Increasing capital spend to $14bn

To support this, Walmart will increase its capital expenditure (CapEx) to around $14.0bn this year, a significant increase on the roughly $10bn annual spend of the last three years. The most significant changes will see a larger proportion of the spend being directed towards the supply chain, ecommerce and other technologies, while the share for remodels and other customer initiatives will fall. This reflects the significant programme of store upgrades that have been undertaken over the last few years, although this area will account for around a fifth of all spending.

Technology and supply chain investments

With revenue increasing by $40bn last year, a year ahead of where it expected to be, the retailer plans to lean heavily into key markets. This includes building ecommerce capacity, supply chain capability and continue with its multi-year journey to transform its tech stack and upgrade legacy technologies. Walmart will step-up automation in its distribution centres to build department and aisle specific pallets for stores as part of its efficiency-led initiatives. As it invests to build new capabilities, it will also look to monetise them, with a focus on advertising (Walmart Connect),data, fulfillment and last mile.

Investing for long term growth

The investments are expected to accelerate sales and profit growth in the mid to long term, especially as the retailer sees a runway towards a $100bn ecommerce business in the near term, (2020: $65bn), and $200bn beyond that. Walmart will also enhance its general merchandise offer, continue to build its third-party marketplace and grow alternative revenue streams including advertising, financial services and healthcare. For 2022, this is expected to translate into US and Sam’s Club comp sales growth in the low single-digits and adjusted operating income to be flat or slightly up, however, after a year of transition, these investments are expected to deliver sales growth of over 4%, with operating income growth ahead of sales.

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