Walmart’s full year results show that, although the US business is finally getting back on track, it must not take its eye off the core domestic division. Comparable store sales at Walmart US rose for the second consecutive quarter, following nine quarters of declining sales. Equally, shopper numbers at US stores improved, following six quarters of declining traffic. Both improvements are testament to Walmart’s new “back-to-basics” strategy which has seen a complete u-turn on initiatives such as SKU rationalization in order to get back to its roots as the lowest priced retailer on a wide array of brands. But this has come at a price - net income for the entire group dropped by 14.7% to $5.2 billion in the final quarter of the year.
Getting back to basics is working. WMT has added back 8,500 SKUs.
Margins were hit because some of the initiatives launched to target core shoppers, although vital and clearly working to drive topline growth, are not cheap. Layaway and the Christmas Price Guarantee (sound familiar, UK readers?) are both good examples. But Walmart is right to focus on its core customer group, which they so publicly neglected during the days of Project Impact in the hope of acquiring new and more affluent shoppers.
Walmart learned the hard way that it cannot veer too far from its core. Low prices and a wide assortment of brands are integral to its success. That said, the key challenge for Walmart going forward will be maintaining this concept in the face of the ever-growing online threat. They’ve been scrambling to make up lost ground in this area, and crucially now have a leadership team in place with the relevant experience to drive this forward. Walmart has been planting big boxes for the past 50 years but, like its global peers Tesco and Carrefour, is struggling to maintain its relevance in today’s digital world. Going forward, Walmart’s bricks and mortar strategy must become much more event-driven and supported with exclusive ranges to avoid direct price comparisons. While we maintain that Amazon poses the biggest threat, Walmart has the opportunity to leverage its physical store base. More needs to be done to create a seamless shopping experience across all channels.
Although we never rule it out, we do not envisage any additional new market entries in 2012 unless an opportunity presented itself. Longer term, we expect to see further M&A activity in existing markets such as Brazil as well as in new ones like Russia. This year, Walmart will have its hands full with further integration in South Africa and, to a lesser extent, the UK. Entry into the Middle East with George franchised stores will be cautious, but if successful could represent a new route to market in other parts of the world.
Last but not least, I’m excited to say that my book on Walmart will be launched in just over one month! Details can be found here if you’re interested, and I’ll also be discussing more on Bloomberg TV at 6:40 tomorrow.
