The last two weeks have capped off what has been a less than spectacular three-month run for Walmart. The third quarter of 2015 opened with the news that Amazon had officially bounced Walmart from the #1 spot as the planet’s biggest retailer (by market cap), and Q3 ended with an earnings forecast predicting 6–12 percent negative growth in the stock price paired with 1 to 2 percent sales growth due to the strong dollar.
That rather grim result set off the expected Wall Street reaction, and the world’s second-largest retailer by market cap saw its stock price take the worst beating its seen in a single day in the last 27 years. Stock prices dropped 10 percent on day one and took $21 billion of Walmart’s market cap with it.
The following few weeks were something of an ugly coda to that, with share prices falling as far as 38 percent below the stock’s 52-week price average.
And, because the universe is a rough place to run a business, Amazon reported a second quarter in a row of profit, a fact that pleasantly surprised the market into further burnishing its market cap.
But Walmart, according to a spokesperson PYMNTS reached, finds recent developments less worrisome than motivational and remains confident the $2 billion to eCommerce upgrades the company has committed to will be key to an emerging Walmart narrative that is very different than the one of late.
Some, however, are worried the problems are bigger than a bad quarter and that Walmart faces a retail era that is “unwinding” its business model. So, what are the problems, and what is the plan? PYMNTS has the guide.
The Big Worry
The short-term picture for Walmart has been improving.
The share price bloodbath has stopped — or has at least been staunched. The rapid downward trajectory of the stock price has greatly slowed, according to reports, and Walmart is being increasingly described as due for a bounceback, particularly going into the holiday season, its traditional time to run the table, so to speak.
But the recent show of weakness has not passed unnoticed, and questions about just how wounded a warrior Walmart really is are becoming increasingly prevalent and pointed.
While NPR opened its coverage with the relatively neutral “Walmart Vs. Amazon,” The New York Times decided to mildly opine with “Walmart Plays Catch-Up With Amazon,” and USA Today went with the far more colorfully descriptive “How Amazon Is Eating Walmart’s Lunch.”
All make the same basic case against Walmart, which is that it is the business of the brick-and-mortar past, while Amazon is the business of the digital future. For its scale and volume of sales, Walmart allowed itself to fall fundamentally behind in adapting to consumers’ increasingly online and mobile-directed shopping habits. Though it’s worked diligently recently to catch up and has announced massive investments over the next two years, a lot of prominent analysts say it might just be too much, too late.
“With every passing year, it becomes harder and harder for Walmart to compete with Amazon,” Mark Mahaney, who covers Internet retailing for RBC Capital, told NYT. “Over the past five years, Amazon has gone through an aggressive investment cycle. They’ve dramatically improved fulfillment, which means they can get products from click to doorstep faster and more cost-efficiently than anyone else.”
“The shift in retail to the Internet is a huge change, and it’s not just affecting Walmart,” said Simeon Gutman, a retailing analyst for Morgan Stanley. “Every retail company is trying to manage the transition. It’s not well-defined or understood, and there’s no road map. Walmart is just the biggest. It’s a behemoth that was built on superstores with volume and distribution efficiencies. That whole model is being unwound.”
The Alternate Digital Road
Walmart, though it acknowledges the battle so far, is not quite ready to cede the war quite so quickly as the world’s retail writers seem to be.
“We’ve certainly seen a lot of growing pains as Walmart has transitioned its business model over the last two years, and that has been exacerbated by currency headwinds of late,” a Walmart spokesperson told PYMNTS in an interview. “However, when you look at the reality of how consumers are shopping, which is still in a physical store over 90 percent of the time, with the scope of digital upgrade Walmart has made combined with the number of consumers we can reach, it is still the best-positioned retailer from most measurable metrics.”
And that investment has been wide-reaching. There are 2,200 software engineers working in Silicon Valley under the Walmart flag, and in the last two years, the massive physical retailer has invested in building its own cloud data centers. Walmart has also upped its eCommerce fulfillment centers and rapidly upgraded its delivery logistics programs.
But there are also a lot of Walmarts nationwide — depending on what stat one favors, up to 90 percent of U.S. citizens live within 15 minutes of a Walmart — and digital convenience doesn’t just mean being able to order a package to one’s home in a day or two.
“Our investments are also geared toward making it easy to buy with a click on a computer or a tap on the phone and be able to pick it up at a Walmart in more or less the time it takes to drive there,” Walmart’s spokesman noted. “The data indicates that the experience consumers favor is cross-channel and the ability to customize goods. Ultimately, Walmart can and will offer that better.”
Walmart’s goals, its spokesman further noted, remain mostly unchanged.
“Walmart doesn’t go to market trying to beat any other firm. We go with the goal of making sure our customers can get the goods they want, when they want them, at a reasonable price.”
But, it seems, it wants those customers to also buy those goods at Walmart and aren’t above giving them something of a digital push to do so.
Most online retailers, in an attempt to compete more efficiently with Amazon during the big shopping season, drop their online shipping fees during the holiday season — something Walmart itself has done routinely for the last several years.
But not this year. While standard free shipping rates apply over $50 as always, standard shipping rates will apply. Instead, according to the The Wall Street Journal, the retailer will push long-term discounting (winning on its traditional price) and incentives that push consumers to order online and pick up in stores. (Walmart had no official comment as to what those incentives might look like.)
Many have noted it is a risky move, particularly with so many competitors offering free shipping. But it is a move that might pay off, as it leverages digital to shift consumers away from pure online-to-home ordering, where it might always be perceived as playing catch-up to Amazon, to multichannel digital shopping, where it has by size, scale and scope literally the world’s biggest edge.
Though it is fun and fashionable to call it early, we think it might at least be prudent to get to the other side of 2015’s holiday season to make any calls on the long-term shape of retail.
But it is notable at least that for all its past success and power, Walmart has attracted very significant doubts from some very smart people.
“In theory, they should be able to use their immense volume and distribution network to compete with Amazon,” Prof. Bruce C. Greenwald of the Columbia Business School told NYT. “But they’re not a technology company, and I don’t know what makes them think they are. [It] doesn’t inspire confidence.”
But then again, while Walmart isn’t a technology company, it is a very large company, with very deep pockets — half of a trillion dollars in annual revenue, not too shabby.
And that detail might matter very much in the not-so-distant future because other than Amazon, which has been wildly successful, as has eBay to a less extreme extent (but its fortunes remain up in the air now that it exists apart from its extremely powerful payments platform, PayPal), eCommerce doesn’t have as many big success stories as the buzz would indicate. Online shops have so far proven to be easy to found, easy to find funding for but hard to run for profit, especially on the public markets.
A reality we’ve seen play out as eCommerce brands have been struggling after going public. Even VC-backed eCommerce superstar startups like Jet.com have found that getting out there and to scale isn’t so easy. Moreover, with Jet seemingly stumbling right out of the gate, it remains to be seen how long VC enthusiasm for big funding and big valuations before any proof of profitability will hold out.
A long way of saying, there might soon be a market full of all kinds of firms, with all kinds of brilliant eCommerce insights, that have no scale and no money.
Two things Walmart has a whole lot of.