The Current, delivered daily.
When history looks back on Walmart’s recently-ended second quarter, it will likely be remembered for how the retailer slashed its profit forecast and laid off 200 corporate employees as the quarter was coming to a close, then beat earnings expectations anyway in the final results.
A mix of falling fuel prices, back-to-school shopping, markdowns and new spending from higher-income shoppers amid rising prices are some of the trends that helped propel it to a strong close in July. That provided revenue growth of about 8%, and offered some calm to those who see the nation's largest retailer as a barometer for an economy that many fear could be heading for a recession.
The quarter could also prove to be remembered for the moves it made to deal with inventory. Alongside markdowns, Walmart canceled billions of dollars in orders to prevent even more merchandise that was mismatched to demand from adding to the pileup.
These speak to the state of the company now. But it's also important to remember how Walmart is moving forward. For Walmart, that means growing a digital and ecommerce business, and this quarter marked what could later be seen as a milestone step on that journey.
As Walmart Inc. CEO Doug McMillon put it to analysts, “We're becoming more digital and even more relevant as an omnichannel retailer, and the related businesses like fulfillment and advertising continue to grow. We're building a different business and we're making progress.”
That progress can be seen in the results.
Ecommerce grew 12% year-over-year, and 18% on a two-year stack. This outpaced revenue growth (8%) and comp sales (6.5%), and came after 1% growth in the first quarter. The company showed that building for the long haul could weather the moderation of sales during a quarter that in-person shopping ticked back up.
It comes as a result of expansion. The company now has more than 240 million items on its ecommerce sites, and its third-party marketplace seller count has increased about 60% year-over-year.
The retailer is also seeing international growth in ecommerce. Over the last two years, Mexico grew 31%, Canada grew 32% and China grew 152%.
When it comes to the company’s fulfillment network, supply chain automation technology is also being introduced at stores and distribution centers. CFO John David Rainey, who recently joined the company from PayPal, talked about VizPick, an augmented reality tool for inventory management.
“The team is also working on getting items to customers faster while lowering the cost of delivery through a significant increase in the number of orders fulfilled by stores,” McMillon said. “We've increased this volume by nearly 40% from a year ago.”
GoLocal, the company’s white-label local delivery service, passed 1 million deliveries for other businesses, and expects to have 5,000 pickup locations this year.
Advertising grew nearly 30%, including Walmart Connect in the US and Flipkart in India, which McMillon called “nice to have.”
“Improvements to search and our large first-party shopper data have led to performance improvements for our advertisers both year-over-year and sequentially,” McMillon said. “We've seen the number of active advertisers investing with us increase 121% over last year. Even more encouraging, these improvements have supported the overall site experience for our customers by helping them find the right products or discover new ones that are most relevant to them.”
Another key component is Walmart+, the subscription service that offers a growing number of perks like free delivery, fuel discounts and members-only events. Walmart is growing what the membership offers, but less is known about the results of this expansion. The company has not yet provided membership metrics for this program. The results of a new deals event held a month before Amazon Prime Day, called Walmart+ Weekend, weren't disclosed, either. Last week, market research firm Consumer Intelligence Research Partners released an analysis showing that Walmart+ growth had plateaued through the last two quarters, as the share of Walmart.com members who were subscription members was relatively level.
On the earnings call, the company’s leaders touted a new lever to strengthen retention in the program. Walmart signed a deal to add a free membership to the Paramount+ streaming service to Walmart+.
“When we talk to members and ask what are the benefits they were looking for, the number one feature outside of delivery of product from both stores and ecommerce was an entertainment benefit,” Walmart US President John L. Furner said. “And there were others they talked about, but entertainment was at the top of the list, and that’s what led to the decision to add this benefit to the program.”
Each part of the digital business works together. Membership helps to direct more returning ecommerce customers to a growing marketplace, where brands tap the company’s advertising tools to stand out, and in turn help customers discover new goods, which leads them to back to buying. There is the potential for connections to be made across the programs, as well. Given that Walmart is piloting shoppable streaming ads with Roku and just launched a streaming service, it's easy to envision future crossover between a Walmart+ perk and advertising as well.
“The relationship between digital growth, marketplace growth and advertising is something that we're trying to take advantage of. And in the case of the US business, the ability to attribute sales later on to in-store transactions makes us uniquely positioned, and we've made a few enhancements lately for people that are consuming advertising from us,” McMillon said.
The importance of the ecommerce business to Walmart came through when executives were asked about how the company would come out on the other side of the current period of inflation and consumer shifts that include trading down to save money.
“We certainly hope to hold share around the world, and I think this inflationary environment is going to last for a while, so people are going to be value conscious, which plays to our strengths,” McMillon said. "The ecommerce experience in the end is a focus of ours and we want to continue to grow our pickup and delivery businesses around the world.”
For the retailer, ecommerce helps to expand the number of products a customer can access, and the ways in which they can access them. The company presents this variety as a way to help navigate shifts. It rapidly grew these capabilities over the last two years as demand rose during the pandemic. Now, they are helping to navigate changes in spending habits. Convenience will grow in importance, as well. Listening to the company’s leaders, one gets the sense that they feel ready. Furner recalled the 2008-09 recession, and what the company had built since.
“In that time period, we had our store business and a small ecommerce business. We did not have food pickup. We didn't do delivery from stores. We didn't deliver groceries. We didn't have [direct-to-fridge delivery service] Walmart InHome, and we didn't have Walmart+,” he said. “So, our ability to serve customers… in a more flexible manner than what we could have 13, 14 years ago is pretty dramatic.”
Trending in Retail Channels
Campbell Soup Company CEO Mark Clouse offered thoughts on messaging amid inflationary shifts in consumer behavior.
After months of elevated inflation and interest rate hikes that have the potential to cool demand, consumers are showing more signs of shifting behavior.
It’s showing up in retail sales data, but there’s also evidence in the observations of the brands responsible for grocery store staples.
The latest example came this week from Campbell Soup Company. CEO Mark Clouse told analysts that the consumer continues to be “resilient” despite continued price increases on food, but found that “consumers are beginning to feel that pressure” as time goes on.
This shows up in the categories they are buying. Overall, Clouse said Campbell sees a shift toward shelf-stable items, and away from more expensive prepared foods.
There is also change in when they make purchases. People are buying more at the beginning of the month. That’s because they are stretching paychecks as long as possible.
These shifts change how the company is communicating with consumers.
Clouse said the changes in behavior are an opportunity to “focus on value within our messaging without necessarily having to chase pricing all the way down.”
“No question that it's important that we protect affordability and that we make that relevant in the categories that we're in," Clouse said. "But I also think there's a lot of ways to frame value in different ways, right?”
A meal cooked with condensed soup may be cheaper than picking up a frozen item or ordering out. Consumers just need a reminder. Even within Campbell’s own portfolio, the company can elevate brands that have more value now, even if they may not always get the limelight.
The open question is whether the shift in behavior will begin to show up in the results of the companies that have raised prices. Campbell’s overall net sales grew 5% for the quarter ended April 30, while gross profit margins held steady around 30%. But the category-level results were more uneven. U.S. soup sales declined 11%, though the company said that was owed to comparisons with the quarter when supply chains reopened a year ago and expressed confidence that the category is seeing a longer-term resurgence as more people cook at home following the pandemic. Snacks, which includes Goldfish and Pepperidge Farm, were up 12% And while net sales increased overall, the amount of products people are buying is declining. Volumes were down 7%.
These are trends happening across the grocery store. Campbell is continuing to compete. It is leading with iconic brands, and a host of different ways to consume them. It is following that up with innovation that makes the products stand out. Then, it is driving home messaging that shows consumers how to fit the products into their lives, and even their tightening spending plans.
Campbell Soup is more than 150 years old, and has seen plenty of difficult economic environments. It is also a different business today, and will continue to evolve. At the end of the day, continued execution is what’s required.
“If it's good food, people are going to buy it, especially if it's a great value,” Clouse said.