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Reaction to Walmart’s announcement in mid-October that the retailer’s sales and earnings would suffer as a result of its heightened commitment to its employees, its stores and its online presence dwarfed any negativity the company had experienced in nearly two decades. The retailer’s stock plunged — and the rub-off impacted the entire retail community.
Indeed, so powerful is Walmart’s impact on U.S. retailing that Doug McMillon, the retailer’s chief executive officer, spent much of the week following the announcement defending decisions that, in a former time, would have been accepted as one of the costs of doing business.
On Monday, October 19, The New York Times ran a story on the front page of the paper’s business section attempting to clarify McMillon’s strategy and, in so doing, control the damage. In amplifying McMillon’s comments, the Times noted that Walmart’s stock had plummeted by 30% thus far this year, while the company had recently laid off some 500 headquarters employees.
Additionally, the newspaper noted the controversy swirling around the company’s lower-margin Sam’s Club unit, a membership club competitor to Costco that has not performed robustly of late. As well, the Times explored the possibility of Walmart’s exiting some challenging overseas markets or buying an e-commerce player.
Indeed, these options have been alluded to by McMillon, who was identified in the article as representing “a generational, cultural and societal shift within the retailer.”
Truth is, McMillon should be admired for his position, not vilified. Change must come to all retailers, as it has finally appeared at the doors of the world’s largest retailer. More to the point, Walmart’s current struggles do not mirror those of several of its competitors, companies that are struggling with elusive sales amid an economy that’s working to discourage lower-income customers from frequenting their stores as they did in times gone by.
Rather, the significant facts and figures are these: With some $485 million in annual revenue, 5,000 stores and clubs around the world, and a labor force of some 1.4 million associates, Walmart remains the world’s largest and most profitable retailer — by far. Though Amazon outperforms Walmart online, selling $90 billion worth of merchandise online last year compared to $12.2 billion by Walmart, those comparisons fail to tell the entire sales story, namely that e-commerce accounts for just 2.5% of Walmart’s total sales.
Though America’s middle class continues to struggle, that struggle is not impacting only Walmart. Moreover, no one foresees this downturn as permanent, and Walmart stands to benefit as this class of consumers recovers its buying power.
At the heart of Walmart’s new strategy is the inescapable fact that the retailer’s competition, though changing, is stronger than it’s been in quite some time. Costco remains its strongest competitor, Kroger and Albertsons-Safeway are gathering strength, Aldi is the hot new grocery retailer, the dollar stores are gathering momentum, Amazon looks to be a permanent marketplace presence, although it is still too soon to proclaim that Walmart has stumbled in its attempts to gain a meaningful online presence.
In short, Walmart is attempting to remain atop the retailing pyramid by doing what so many other retailers are trying, namely to bring its huge capabilities to the competition. Indeed, in acknowledging the need for change, McMillon had this to say: “We know that what we did in the past wouldn’t by itself be enough to win with customers. Retail history is very clear. Those that are unwilling or unable to change go away.”
The news, whether good or bad, is that Walmart is not going away anytime soon.
