Q3 shows a vulnerable Walmart

After nine consecutive quarters of declining comps, Walmart has finally broken into positive territory. Comps at its core domestic division were up 1.3% in Q3, a sign that some of Walmart’s initiatives such as restoring EDLP, adding back SKUs and improving in-stock levels, are beginning to bear fruit.

But let’s not get too excited here. Not only did Walmart (corporate) report an unexpected decline in net profits, but Walmart US saw a decline in shopper traffic during the third quarter. Not good news as we head into the all-important Christmas trading period.

Grocery, health and wellness and hardlines – which make up 75% of Walmart’s business - are comping positive. No surprise here as these are all areas where Walmart is adding back SKUs: more than half of the 8,500 SKUs being added back are in grocery - which has also been boosted by inflation - whereas another 1,700 are in health and wellness and an additional 3,100 in hardlines (given that an initial reduction in fishing poles and firearms left shoppers stumped.)

So that leaves us with three categories that, by process of elimination, are still in negative territory:

1) Entertainment – the biggest concern given the competitive state of this category online. Over the next crucial six weeks, Walmart’s Christmas Price Guarantee should help to instill trust among shoppers although this guarantee does not include “internet pricing”. In other words, Amazon will continue to steal share (and as a side note, Amazon’s soap.com just added 10,000 dry groceries to its offer, proof that it is en route to becoming a credible threat in more than just the entertainment category)

2) Apparel – a category that has suffered for quite some time now. It’s never been entirely compelling to begin with and Walmart has learned from previous mistakes that venturing beyond the basics is a dead end route. The recent announcement of the relocation of its apparel HQ from NYC to Bentonville is a sign of the times.

3) Home – again, a challenging area for Walmart given the discretionary nature of the category and lack of compelling offer compared to its peers.

So, whilst it’s good news that the retailer is comping positive in its core categories, there is no denying that Walmart must address the thorn in its side - that large, pesty threat from the world wide web.

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