Is the COVID e-commerce dividend over? Recent fiscal announcements from various retailers certainly appear to suggest that there’s at best a flattening out now that physical stores have re-opened their doors. Walmart has just become the latest indicator of what looks like a 2021 trend.
While the firm’s Q2 profits fell by 34% year-on-year to $4.28 billion - in large part down to divestments, including the £6.8 billion sale of UK supermarket Asda - sales were up 2.4% to $141.05 billion, comfortably beating Wall Street expectations. Digital growth was 6% with online orders accounting for 0.2% of total, down from 6% a year ago at the height of lockdowns and stay-at-home orders.
Walmart CEO Doug McMillon sees the ‘new normal’ in the Vaccine Economy as being about consumer choice, observing that:
Customer behaviors changed during the quarter as people were shopping with us more in stores than online.
This makes omni-channel capabilities a top priority, he said:
Recent quarters have demonstrated more than ever that our omni-channel strategy is the right one as we serve customers regardless of how they want to shop. There are occasions when people want to visit a store, times when they want to pick up and times when they want to have it delivered. We're going to keep innovating and executing to get better at all three as our diversified omni model positions us well to gain share in high-growth markets around the world.
We've proven our ability to serve customers in challenging environments and across multiple channels, formats and countries. The phrase, "Serving customers", has traditionally meant one thing at Walmart, but today, it includes serving marketplace sellers, our advertising partners and those that want to use our fulfillment services or proprietary software.
There’s been more work put into improving the Walmart tech stack, he added:
Our tech and product teams have made a lot of progress modernizing our technology and way of working. We're starting to see the fruit generated by their efforts as we build innovative solutions that have utility across the enterprise.
We're starting to see more examples of where one idea or one tech product can benefit more of our businesses and faster. Cloud-powered checkout comes to mind. This technology enables seamless experiences for customers and associates like mobile Check Out With Me, Scan & Go and Self-Checkout. More than 30 applications across five countries are leveraging cloud-powered checkout for retail transactions.
Things like building a 360-view of the customer using machine learning is important for our business in the US, but it's also important in other markets. That's why we're now leveraging this technology in Mexico and in Central America. The Ask Sam app…was originally built for Sam's Club associates. Now the same concept has been adapted for use in supercenters. It helps our associates be more productive and better serve customers. I'm really pleased about the work our tech teams are doing to unlock value across the business.
With an eye on e-commerce, there’s still a lot to be learned from Walmart’s Flipkart marketplace in India, suggested McMillon:
This team has been busy. They introduced Flipkart Camera, a first-of-its-kind technology at scale for the Indian customer that allows users to view products in their physical environment, expanded their grocery business to over 70 cities and launched a new commerce platform called Shopsy to help reach the reseller community. They're also increasing customer stickiness with Flipkart Plus. It's a tiered program based on spend that helps us drive higher repeat rates. Customers in the program transact more frequently and we see lower churn than others. They also recently completed a new funding round, which placed a value on the business of about $38 billion, significantly higher than the valuation when we invested just three years ago.
Tapping into digital global learnings that can be shared is an asset for Walmart, he added:
The world changed as it became more digital and the business models and the products we need to build, the work we need to do ends up being even more common than it was before. And so with the shift in the International portfolio…we find ourselves positioned, with the Flipkart investment in particular, toward more of a digital business and more of an e-comm business. I started learning about e-comm from food from the UK many years ago. Then we all saw China explode. Now we're living in a very different environment in India versus what we see in the US. And Walmex has become more of a digital company and looks more like the US in some ways. So it's exciting to see a pure e-commerce percentage for International and for the total company growth. I think the story that gets buried there is that the business overall is becoming more digital in its mindset.
But with a nod to the well-worn Walmart meme of its store estate never being far from almost every American, McMillon noted:
We're focused on how do you do a better job with all the inputs related to omni - and that's hard work. Building digital products that marry e-commerce with stores takes more work than just building an e-commerce solution, takes more time, takes more complexity, but that's where the secret sauce is. If we can continue to blur the lines so that customers and members can shop however they want to shop, whenever they want to shop…this quarter is kind of a good example of the fact that we can be somewhat indifferent. We're trying to build a model where we're completely indifferent, top and bottom line, as it relates to how people shop. I think we’ve started that and still have a lot to do to deliver on that goal.
McMillon makes no secret of his corporate agenda “to change the business to be more digital”. What he means by that, I assume, is more of an omni-channel operation rather than just a digital focus. During the pandemic’s height last year, Walmart saw an acceleration of in adoption of omni-offerings, such as Buy Online, Pick-up In Store - or outside store! - and of home delivery. As we’ve noted with other retailers, particularly in the grocery space in the US, the genie is out of the bottle there. The only question is what the omni-mix looks like as the Vaccine Economy stabilizes. Target reports its quarterly numbers later today. What the balance looks like there will be, I suspect, very indicative of a direction of travel that’s already looking pretty clear.