Walmart’s CEO said inflation will persist into the new year, especially for food prices.
Although government data this week showed the pace of price hikes in the United States dipped to an 11-month low of 7.1% last month, key categories are still stubbornly high and set to shape the retail landscape’s competitive environment for the foreseeable future.
“Dry groceries and consumables is where we’re seeing the most stubborn and persistent inflation, mid-double-digit inflation, and we’re not hearing from our suppliers, looking forward, that that’s going to come down soon,” Walmart CEO Doug McMillon said in a televised interview on CNBC during the Hope Global Forums in Atlanta.
For every core category — like beef — that has come down in price, another — such as chicken — has gone up, McMillion said in his most recent public appearance, noting his expectation that consumer demand and buying behavior will continue to respond to this ongoing pricing predicament, just as they have with purchases of discretionary items and general merchandise.
“We think there’s going to be persistent inflation with us for a while,” McMillon said.
The Fight Continues
As much as the decline in the so-called headline rate was welcomed news this week, falling two percentage points from its June peak of 9.1%, the fact remains that the present level is still running at more than three times the Federal Reserve’s long-term target of 2% inflation.
As PYMNTS data has shown, consumers expect that inflation will be a factor well into the middle of 2024, which means the impacts of inflation will be around and shaping retailers and customers for the foreseeable future.
“What we’ve seen over the last couple of quarters is that a lot of our growth is being driven by customers with more than $100,000 in household income,” McMillion said at the Atlanta event.
“That’ll probably still be the case for some time as people are even more price sensitive,” he added, noting Walmart’s long-standing value proposition continues to be a draw.
It is also worth noting that the value prop is a draw for investors, as shares of Walmart are within 10% of their all-time high set in April, while rival Amazon’s stock has been cut in half and is wallowing at a three-year low.
The Price of Price Sensitivity
Walmart presumably wants to see a strong global economy as much as anyone, but it is clear that the Arkansas-based operator of over 11,000 physical stores around the world has outperformed during the past three years of turmoil and disruption, all the while making continued strides to digitize and upgrade its operations and narrow the online gap with Amazon, which still controls an astonishing 45% share of all U.S. eCommerce.
To that point, while Amazon CEO Andy Jassy has said the Seattle-based company is in the process of right-sizing its staff and operations after overshooting its pandemic era growth and doubling its warehouse and fulfillment capacity in a 24-month span, Walmart is taking advantage of that fact through strong digital upgrades and investments.
In the past week alone, Walmart has unveiled two new digital shopping tools to make it easier for customers to shop, connect and choose pickup or delivery. This, as the retailer debuted its expanded Text to Shop feature, in the wake of last week’s role of its TrendGetter video and image-based search tool.
In addition, there are also reports that Walmart is moving ahead with its long-standing financial services ambitions via an in-house version of a buy now, pay later (BNPL) plan to augment — or compete with — its existing offers handled by Affirm.
“Customers come to Walmart for a variety of things, including financial services,” McMillon said. “So, what’s happening these days is we’re pivoting those financial services to digital, and, over time, we’ll have a fairly wide range of services that we will make available.”
He also pointed to the retailer’s standard M.O. of lowering fees for customers as its goal while also incentivizing them to transact and save.
“We appreciate our partnership with Affirm, and we’ll do business with lots of people over time, and we won’t try to do everything ourselves,” he said.
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