At Walmart’s annual investor day this year, the company announced something of a change of pace from the last several decades of its growth and development. The world’s largest retailer by sales will be pumping the breaks on its store expansion model as it reorients its attention toward expanding its eCommerce operations and infrastructure. Walmart also confirmed it will be looking toward its current assets more as it looks to expand future growth.
Walmart will open fewer stores in the U.S. this year than it had expected to — 2016 saw the opening of 130 new Walmart locations, as opposed to the 135–155 they had originally projected. Next year will see even slower growth in physical store locations — Walmart will open just 35 new supercenters and 20 new Neighborhood Market locations for a grand total of 55.
Which is not to say there won’t be big capital expenditures on the docket — $11 billion is planned for next year — but only 20 percent of it is marked for new stores, as opposed to the 50 percent of 2013’s $13.1 billion capital budget.
“This is a different Walmart,” Moody’s Analyst Charlie O’Shea said.
Cowen and Company Analyst Oliver Chen echoed O’Shea, noting that, given Walmart’s relative strength in physical retail — including its biggest quarterly same-store sales gain in four years during the period ending July 31 — the time is right for Walmart to begin to strategically shift its priorities.
“There’s so many physical customers that come to a Walmart,” he said, noting that 90 percent of the U.S. population lives within 15 minutes of a store.
Apart from proximity, Walmart has also sought to upgrade its workforce with a $2.7 billion investment in wages and has started work on a mulit-year, multibillion-dollar internal project aimed at lower costs across the board for its customers.
Also an area of particular strength has been online grocery, which has both brought in new buyers and upped overall spending as customers are showing an increasing tendency to pick up additional items when appearing at the store for their orders. This capability has been rolled out to 80 markets and 500 stores and will be in 100 markets and 600 stores by year’s end.
The long game for Walmart — especially when combined with its $3.3 billion acquisition of Jet.com and plans to give 500 of its stores a face lift — might be able to help Walmart keep its sales going up, even operating out of fewer physical locations.
On the whole, Walmart is pushing for 3–4 percent growth annually — a target most analysts believe they will hit in 2016, barring underperformance during the holiday season. The Jet.com acquisition remains the crucial unknown in the equation — particularly as it will influence the sum total of Walmart’s digital ambitions. Walmart’s target for online sales growth is very aggressive — 20–percent online sales is what they are trying to hit in the second half of the year, a feat that both analysts said is within the realm of possibility.
“You just spent $3.3 billion accruing this asset. You’ve got to maximize it … and that’s what they’re doing,” O’Shea said.
And while $3.3 billion is a lot to pay in absolute terms, Walmart is more than paying out, according to both O’Shea and Chen. It is also investing in a future where it continues to dominate the retail landscape.