Walmart's drug problem doesn't help, but there's a return to omni-channel form as the Holidays loom

Earlier this year, omni-channel retail bellwethers Walmart and Target triggered panic among the short-termist lily-livered on Wall Street when their pandemic digital growth boost didn’t carry on into the Vaccine Economy. Both report fresh numbers this week and have a chance to turn things around.

For Walmart, it’s a partial success, undermined only by an opioid problem. Total revenue reached $152.81 billion, up 8.7 percent from last year. But there’s a huge $3.1 billion payment as a settlement for a series of opiod-related lawsuits and that pulled the rug out from under a better return-to-form for the US’s largest retailer, resulting in a net loss of $1.77 billion for the quarter.

But CEO Doug McMillon insists that the fundamentals of the business are in place as the Holiday season looms:

As a total company, we're seeing strength in stores, clubs and e-commerce. Transactions are positive, and our penetration of e-commerce sales continues to climb. So far this year, 13% of our total sales as a company now start in a digital fashion, and that's led by Walmart International, which is already at 20%.

With the cost of everyday items still stubbornly high in too many categories, more customers and members are choosing us for the value and assortment we're known for and they're responding to the changes we've made to save them time. With this in mind, we're focusing on earning repeat business from customers who are now shopping with us more frequently than before.

He adds that the Walmart app is a crucial part in all this:

Our app experiences around the world are a place where we introduce these newer capabilities. As our app becomes more a part of daily life for our customers and members, they find that they can do so much with it, like easily build a shopping cart, schedule a time to pick up an order or have it delivered when it's convenient for them, skip the line with scan & go or find an item in their local store.

Omni-thinking

There’s cross-fertilisation happening across Walmart business divisions, says McMilllon:

Our flywheel continues to take shape. We're scaling our newer businesses and connecting them to our larger, established retail businesses, primarily by how we design digital interactions. One example is how our growth in e-commerce, especially the Marketplace, fuels our ad business. More items and sellers drive GMV and improved customer satisfaction. And it also drives success in advertising, they're mutually reinforcing.

If we double-click on advertising with Walmart Connect in the US, we see it's benefiting from growth in e-commerce and from improvements made within the business itself, and we've seen strong growth in return on ad spend over last year. In turn, this helped drive the highest ad spend all year for sponsored search in Q3. These improvements underscore Connect's strengths and position the business for continued growth.

John Furner, CEO Walmart US, picks up the same theme:

The business has really positioned itself to be an omni-business. So we are ready for customers however they want to shop. Certainly, I would just repeat that in higher income customer groups, we're seeing more and more often. We're also seeing more digital engagements with customers, more app demos, more users, people shopping more frequently. And I think that speaks to the strength of the flexibility of what we've built.

And for a long time, we talked about the value of a store customer plus shopping on e-com, how much more valuable that was. We see that accelerate when it's pick-up, e-commerce and stores. So going forward, you'll hear us talk about this more and more as an omni-offer which is really flexible for the customer and doing things like having options for Thanksgiving meal that are priced the same as last year are really helpful at a time when customers are feeling the pressure of inflation.

My take

What you see in our results is that we can run compelling stores and clubs, scale a first- and third-party e-commerce business and connect them together in an omni-channel fashion that saves customers and members money and time. Our strategy unlocks growth opportunities for us in a thread that runs from digital retail to fulfillment and advertising and opens up even more opportunities with health and wellness and financial services.

Opiod embarrassment aside, this is not a bad omni-channel return to form for Walmart.

Target on the other hand…well, we’ll come back to that one tomorrow.