Walmart sees a digital COVID boost, but e-commerce still doesn't turn in a profit

Profile picture for user slauchlan By Stuart Lauchlan August 19, 2020
Summary:
Walmart's having a good pandemic...but e-commerce still needs a lot more work before it turns in a profit.

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It was unlikely ever to have been in doubt, but Walmart has been having a ‘good pandemic’ with US e-commerce sales doubling (to an undisclosed level) and the hitherto troublesome Walmart.com turning in “significantly reduced losses”.

While the digital arm is still not turning a profit, Walmart overall turned in net income of $6.48 billion in the three months to the end of July, up from $3.61 billion in the same period a year ago, with revenue hitting $137.74 billion. Grocery sales were a major contributor, while CEO Doug McMillon also pointed to a resurgence in restocking of basic items in areas of the US where COVID-19 continues to rise:

With significant operating restrictions for restaurants across the country, families continue to prepare more meals at home, and our business has benefited from that trend. As you would expect, there continues to be extremely high demand for disinfectants, cleaning supplies, and paper goods. At times, we saw a return stock up behaviors in certain food and consumable categories in specific geographies, where hotspots occurred. 

The COVID-19 crisis has ramped up work on turning around the digital arm of the business, he said, with the past three months seeing significant increases in repeat rates and weekly active digital customers, while store pick-up availability and delivery slots have increased by nearly 30% since February. McMillon said: 

We are pleased with the progress we are making on walmart.com. We had really strong sales growth and significantly reduced losses. The tailwinds we are experiencing are accelerating our progress to build a healthier e-commerce business as we add new brands, improve product mix, growth the marketplace, and achieve more fixed cost leverage. The stores and online merchant teams are now integrated, and we believe we will benefit from that change going forward. The improvements in contribution profit and reduced operating losses are really good to see. We made several structural changes within Walmart US during the quarter as we continue on our path to transform into an omni-channel organization.

Fulfilment

Innovations in fulfilment options are still being rolled out with a focus on increased automation, according to Walmart US CEO John Furner:

We have been working on a couple pilots where we're able to automate, but really increase the amount of picks we're able to deliver from a store. We've got a store in New Hampshire with a system called Alert that does our grocery picking and has this with everything right up to dispensing. We’ll be expanding that pilot into Texas over the next few months. We're optimistic about the number of orders we'll be able to fill from these sorts of installation going forward. As far as the customer who is picking up today and whether they're interested in delivery, I think what we learned from Delivery Unlimited is that there are a wide range of people who appreciate delivery and are looking for ways to be able to buy delivery and pay for it in bulk. So I think it's largely the same customer now. We will, of course learn more as time goes on, but Americans all over the country are looking for convenience and with Walmart's everyday low price plus a convenient delivery fee we see a lot of customers who are interested in this type of service.

The emphasis is on having as many fulfilment options for customers as possible, added McMillon: 

At this point we've got stores, pickup, delivery, a growing e-commerce fulfilment center assortment, so we're positioned to serve them how they want to be served, how they want to shop. So I think the flexibility to respond to 2021 and beyond is there, and the team's done a great job of reacting with speed. The cadence is that the company is picked up. We kind of smile when we think about the holiday because while we have to plan in some aspects of the holiday, we're managing near-term much more actively than we would in a different environment, so I think we're set up to have a business that will grow at a fast rate, and to manage the profitability of it. It was good to see in the last few years, our general merchandise business online grow. We’ve had a lot of brands, a lot of items, and then, this last quarter it was unique because people were at home, and stimulus checks supported purchasing things for them to use at home or fix their home up. So, that was unique, but the commonality of it is that the GM business in Walmart is strong, and that the contribution profit percentage of e-commerce is an encouraging metric.

He wasn’t to be drawn however on when that e-commerce arm might turn a profit: 

There are some big pieces of the e-commerce P&L that are moving in the right direction and they were before. It's just that these tailwinds accelerated that. We don't know what the economy will look like next year in the US we'll have to wait and see, but this theme of an omni-channel presence is happening inside the company, all over the world. 

My take

As I said at the start, this was always a pretty much inevitable story, but it’s still impressive. Mind you, Target just trumped it…more on that tomorrow.