Walmart Inc (NYSE: WMT), US' largest retailer and private employer has once again confirmed it is a grocery powerhouse as it issued its latest quarter earnings on Thursday. Its strong food business brought sales gains but its success is also owed to its impressive delivery infrastructure that is serving it well. But the competition all around and is there to stay.
The reported profit beat expectations and the company raised its earnings guidance for the year. But sales missed analyst's forecasts and there is a slight decline in operating income of 5.4% resulting in $4.72 billion and dropping from $4.99 billion from the same period last year. But more on that later, as total revenue grew 2.5% to $127.99 billion from $124.89 billion a year earlier.
Due to a strong groceries segment, e-sales surged 41% as grocery sales account for as much as 56% of Walmart's total revenue, making it US' largest grocer. The shares were up 1% after the news, with an overall 30% increase throughout the year.
The company expects to add self-driving robots that scrub floors to 1,860 of its more than 4,700 stores by February. In addition to the cleaning force, they will also add shelf inventory scanning robots at 350 stores along with bots at 1,700 stores to automatically scan boxes when they are delivered and sort them out onto conveyer belts. This development was to be expected considering the complex network the giant operates, as besides the impressive physical size of 178,000-square-foot supercenters, there are so many online shoppers.
This strategic move should help the company control costs while enhancing productivity with one million hourly workers in its stores. So, by taking the ‘repetitive and predictive' tasks away, the sales force will have more time to devote to their service (read: selling) roles.
Both Walmart and its competitor, Target Corporation (NYSE: TGT) are testing robots in their warehouses.
But Target that has 1,850 stores in the US and 360,000 workers, but is avoiding a robot-worker strategy. The company added self-checkouts and automatic cash counting machines but the company emphasized it will not employ the robots that Walmart uses. With Target relying more on a "human touch matters" strategy, this drift will surely have an impact of how these giants shape the future of retail.
Walmart had acquired a number of digitally-native fashion brands in recent years and the shift attention to these non-food items is attracting new customers, but slowly as a lot of non-customers still view Walmart as a low-price player with some just being loyal Prime members to the e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) who introduced "Amazon Fresh" in October to provide its Prime members with free grocery deliveries as previously they had to pay $14.99 per month to gain this separate feature.
And competing with Amazon's fast shipment is painful, especially when you want to maintain your low-price range. Just recently, Walmart launched a "Delivery Unlimited" membership where customers pay $98 annually or $12.95 monthly for unlimited delivers, along with an ‘in-home delivery' option costing $19.95 a month. But there are also many deep discounters out there and let's not forget, the ongoing tariffs whose costs Walmart will also have to absorb somehow.
Automation has always been a "polarizing'"issue as it puts many lower-skilled jobs vulnerable. Walmart is on the side that automation is changing the nature of retail whereas Target is making an effort to protect its workers from technology advances. But the harsh reality is that up to 7.5 million jobs are at risk of being replaced by automation in the near future, according to a 2017 study by Cornerstone Capital Group. So the workplace is bound to look different, and not just in retail but the whole economy.
But as for Walmart, the company needs to improve its position in non-food, especially online, to drive a greater volume of higher-margin general merchandise via e-commerce in order to improve its operating numbers. But the fact is that Walmart has a strong position being a company that many times defined frontiers for its competitors. And more importantly, Walmart has more room to grow. Especially as analysts expect online ordering to explode as more and more customers become comfortable with it.
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