Walmart reported strong first-quarter results on May 16, 2024. IMAGE CREDIT: JOE RAEDLE—GETTY IMAGES
Walmart has made large retail operations seem like a breeze. The Arkansas-based retailer, known for its longtime discount stores, has not only retained budget-seeking customers, but is now competing for customers — affluent — rivals Target and Amazon.
The company reported on May 16 that first-quarter revenue rose 6% to $161.5 billion, with comparable sales up 3.8%. According to the company, this is driven by high-income shoppers. Walmart is very optimistic about the outlook, raising its full-year growth forecast to 4% from 3% and expecting adjusted earnings per share to rise to $2.37 from $2.23.
Walmart's chief financial officer, John David Rainey, told Bloomberg on May 16, "We're seeing customers turn to Walmart instead. We've always been considered a cost-effective retailer, but now the label has changed to value for money, quality, and convenience. ”
Walmart attributed its growth to a 21 percent surge in e-commerce revenue, largely driven by curbside pickup and order delivery, a service often favored by affluent consumers who seek convenience. Walmart has also increased its market share in the grocery segment as consumers abandon discretionary shopping in favor of essentials.
Neil Saunders, an analyst at GlobalData, said customers with annual revenues of more than $100,000 contribute the most to Walmart's market share expansion, and the retailer's recent strategy reflects its desire to maintain that status. In April this year, Walmart announced the launch of its high-end private label food line, Better Goods, featuring eye-catching packaging and plant-based products to appeal to Gen Z and petty bourgeois shoppers. Earlier this year, the retailer revamped and renovated 800 stores, adding shelves for $50 silk sleeping masks and $230 duck breasts. The company's chief executive, Doug McMillon, said in the earnings report that the company plans to renovate 900 stores by 2024.
In addition to these strategies, Walmart has been running discount campaigns. Dong Minglun said that the discount campaign is key to Walmart's continued resonance with the consumer base, especially as consumer confidence falls to a six-month low, despite cooling inflation, which also makes analysts optimistic about the company's growth prospects.
Christina Carte, an analyst at Deutsche Bank, wrote: "We remain optimistic about its (first-quarter) results, despite volatile consumer spending, heightened concerns about the health of low-end consumers, and a relatively firm share price." ”
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Walmart has begun to attract high-income consumers, while Target, which has historically focused on high-income consumers, has gone the opposite way because of its lagging sales. The Minnesota-based retailer, known for its high-end yet affordable "Tar-jay" brand, has now shifted its target group to low-income consumers, launching its low-priced "dealworthy" brand in February, with most items priced under $10. Target is also working on other fronts: Following Amazon's Prime and Walmart+'s Walmart+, it launched Target Circle 360, a paid membership service, to attract affluent customers looking for convenience.
Amazon has made a similar move to compete with Walmart's e-commerce. Last month, Amazon launched an unlimited grocery delivery service for Amazon Prime members for less than $10 per month, while EBT cardholders who are not Prime members can enjoy the same service for just $4.99 per month. In July 2023, Walmart launched Walmart+ Assist and halved the price of paid memberships for those receiving government bailouts. Since 2019, Walmart's grocery delivery service has dwarfed Amazon-related services. Insider Intelligence recently predicted that by the end of 2024, Walmart orders will account for 26.9% of online grocery sales, with Amazon accounting for 18.5%. While the mega retailer has expanded its shipping volume to 4.4 billion units in the past 12 months, Amazon Prime reported last month that it reached 4 billion same-day or next-day deliveries in the U.S. in 2023.
Other factors have also kept Walmart at the top of the curve: The company's advertising business grew by 24 percent, which has higher margins than its retail business. Earlier last week, the company laid off hundreds of employees and moved many of its remote workers to its Arkansas headquarters, in another decision following the closure of all 51 health care clinics. As an additional cost-cutting measure, Walmart reduced U.S. inventory by 4.2%. But Oliver Chen, an analyst at investment bank TD Cowen, told Bloomberg in March that Walmart's real strength lies in its potential to reach customers of different tax tiers.
"It's modernizing the brand to make it look sleeker and cooler," Chan said. Walmart excels at selling basic products, but it also wants to expand its visibility so that it can sell a wider variety of products. (Fortune Chinese Network)
Translator: Zhong Huiyan-Wang Fang
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