As part of its annual update for investors, Walmart shared its growth forecasts and capital expenditure plans for next year, and how these align with its plans to develop a global ecosystem.

Anticipating sales growth of 3.0% in 2019/20

Building on the strong performance the business is currently delivering, Walmart is planning for 3% sales growth in constant currency next year. In the US, it anticipates delivering comp sales growth of 2.5-3.0% within its core store stores and around 1.0% at Sam’s Club. Reflecting the ongoing investments and testing of new programmes, it expects ecommerce sales to grow 35%. International sales are forecast to increase 5% in constant currency. This reflects the acquisition of Flipkart and the deconsolidation of Walmart Brazil. Commenting on the business, president and CEO, Doug McMillon, stated,

”We’re adapting and transforming with speed to better serve our existing customers and reach new ones. We’re operating with discipline, balancing our short and long-term opportunities. While we’re excited about what we’ve done so far, we aren’t satisfied. As we execute today and build for tomorrow, our associates and unique omni-channel assets position us for success.”

Source: Walmart

Technology investments impacting profitability

Walmart expects operating income to decline by a low-single digit percentage range, reflecting the acquisition of Flipkart. The retailer’s profits continue to be impacted by investments related to its digital transformation. These mainly relate to its efforts to grow its ecommerce operations, in the US and internationally and optimising new technlogies to drive operational efficiencies. Walmart views these as fundamental to the long-term success of the business.

Less than ten new stores in to open in the US 

Next year’s capital expenditure will be around $11bn. This will be focused on store remodels, ecommerce, technology and the supply chain, reflecting its plans to strengthen key businesses and develop the most productive growth opportunities. While Walmart plans to open just over 300 new stores internationally, mainly in Mexico, Central America and China, it will open fewer than ten in the US. This reflects the downward trend on new space in recent years. However, the retailer will expand grocery pickup to around 3,100 US stores by the end of next year. It recently passed the 2,000-store milestone.

Pushing on with business transformation

There were no significant surprises in this update for investors. The retailer remains focused on business transformation and its strategic goals of making every day easier for busy families, sharpening its culture and becoming more digital, operating with discipline and making trust a competitive advantage. These have enabled it to deliver an improving performance, including four years of positive comp sales growth in the US.

Acquisitions, partnerships and divestments

The business is now starting to look radially different. Key initiatives taken include acquisitions, such as Jet.com and Flipkart, new partnerships, such as those with JD.com and Microsoft and the divestment of non-core activities. The retailer has also built a culture of innovation which enables it to run multiple tests throughout the business, especially those driven by new technologies. Currently Walmart is testing robotics and driver-less deliveries while embedding machine learning across many areas of the business.

Source: Walmart (* partnership or joint venture)

Global ecosystem capability

These have enabled it to start developing a global ecosystem. In addition to its core stores business, the retailer has developed capabilities across ecommerce, supply chain, advertising, digital entertainment and financial services. The ability to combine and optimise these, along with its global scale and reach, will help to position Walmart as a leader in the new era of retail.

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We look at Walmart’s acquisition of Bare Necessities, a leading intimates online retailer, and how it fits into its broader digital transformation plan.

1. Develop deep category expertise and build new supplier relationships

Bare Necessities was founded in 1998 and offers more than 100,000 SKUs from more than 160 brands, including an extensive assortment of bras, swimwear, shapewear and sleepwear. The acquisition will help Walmart to better navigate what can be a complex category and build relationships with some of the leading brands.

Source: Thinkstock

2. Enhance the customer experience on Walmart.com and Jet.com

Bare Necessities will continue to operate its site and run as a standalone and complementary brand to Walmart’s other websites. Noah Wrubel, CEO and co-founder of Bare Necessities will lead the intimates category for both Walmart.com and Jet.com, while also continuing to run Bare Necessities. Over time, Walmart will look to bring some of the products across to Walmart.com and Jet.com to help enhance the customer experience. In addition to the acquisition of Bare Necessities, deals with Hayneedle, Moosejaw and Shoes.com reflect this approach.

3. Provide access to unique brands

Walmart has also acquired digital-only brands that offer unique products. Deals with Bonobos, Modcloth and ELOQUII fit with this strategy. The retailer views these as being increasingly important in the future as the leading retailers achieve range parity online.

4. Create innovative digital experiences to build deeper customer engagement

This month, Walmart also formed a new strategic entertainment joint venture with Eko, a developer of interactive video technology. The companies will develop original, interactive content to help Walmart develop more frequent and deeper engagement with its customers. This could include cooking shows and toy catalogues. The technology enables a new level of personalisation, enabling viewers to participate in and shape stories as they are being told.

Beyond digital transformation towards ecosystem development

These latest deals highlight Walmart’s ongoing commitment to investing in its digital operations and come at a pivotal time in the retailer’s transformation. Earlier this year it formed a strategic partnership with Microsoft to accelerate its progress in the area, enabling it to optimise the tech company’s capabilities. The retailer can also draw on its recent acquisition of Flipkart in India and its strategic partnership with Tencent in China.

Walmart has many of the key elements in place to move towards full ecosystem development. These include its stores, online operations, digitally native brands, logistics operations, payment app and enhanced data-science and analytical capabilities. The ability to combine these in a meaningful way for its shoppers will be a game-changer for Walmart.

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Walmart Canada is undertaking a $175m investment to remodel 23 stores by the end of February 2019. This will include initiatives to better integrate its online and store operations.

Source: IGD Research

Developed a new vision for its Supercentres

With its Supercentre network approaching saturation point in Canada, Walmart has switched its focus to improving its existing store estate and accelerating the growth of its ecommerce business. With over 400 stores across Canada, the opportunities for further network expansion through its current format are relatively limited. Having grown the portfolio at a rapid pace over the last five years, through both store conversions and acquisitions, the retailer has been working on developing a new vision for its Supercentre.

Improving the digital-physical integration

This forms the basis for the remodels being undertaken. Key changes include a refreshed look and feel, including wider aisles, news signage and an updated exterior. The retailer is also aiming to create a more seamless omni-channel experience. Dedicated parking spaces will be added for online grocery pickup while new in-store areas devoted to online orders will help facilitate the interaction between its ecommerce and store operations. Walmart is also expanding its product offer, adding more ethnic and organic items.

Opportunities continue to exist with other formats

While the opportunities to develop large format stores in Canada are limited, retailers continue to push ahead with other format developments. These include smaller supermarkets in urban locations, discount stores and ethnic store formats. Macro trends, demographic shifts and changing shopper preferences are influencing these developments. The growth of online grocery ecommerce, estimated to represent 0.8% of the market, is also influencing the investment choices of the major retailers.

Exclusive Retail Analysis subscriber content: read our new report, Learning from Toronto’s alternative new grocery formats, to learn more about the diversity of formats being developed in the Canadian market.

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