Walmart ecommerce sales grew 12% in Q2, while advertising was up 30%.
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.”
Following the rise of NFTs, Walmart, eBay and Meta are launching new tools to facilitate the exchange of digital goods.
Ecommerce has put the tools of the internet to powerful use, but it has long been centered on the movement of physical goods.
Over the last several years, a new wave of technologists and entrepreneurs have begun to explore the introduction of digital goods to ecommerce, where the value exchange lives entirely in the world of bits, without atoms.
After a period of study and testing, large platforms and retailers are beginning to move ahead with putting new tools to facilitate these transactions into wide release.
The area of digital collectibles is emerging as one of particular interest. Limited edition, collectors’ items have long commanded their own markets. Think of trading cards, action figures, limited-run pressings or the art market as a whole. Now, these are taking digital form. The emergence of tools such as nonfungible tokens (NFTs), which store harness blockchain technology to allow individual versions of digital creations to be available for buying and trading via cryptocurrency, are enabling the beginnings of a new kind of market.
Of the large platforms where ecommerce takes place, eBay has been among the earliest movers in this area. Given that the marketplace is already a place where physical collectibles are exchanged, the extension into digital collectibles makes sense in theory.
eBay has taken steps to put it into practice. The marketplace began allowing buying and selling of NFTs on its platform in 2021. The stated ideas behind the launch made it clear that it saw digital collectibles fitting into the platform.
“eBay has always been the world’s destination for buying and selling the most unique and hard-to-find items - and we’ll continue to be the destination for collectors of all kinds, physical or digital,” said Jordan Sweetnam, SVP and general manager of the Americas for eBay, wrote in an announcement at the time of the NFT expansion in 2021. “This opportunity unlocks new assets for collecting, new ways for people to fuel their passion, and expands eBay’s appeal to a new generation of collectors.”
The marketplace has picked up activity in this area this year. In May 2022, it launched an initial collection of NFTs on the web3 platform OneOf, which were new interpretations of iconic athletes featured on Sports Illustrated covers. In June, the marketplace took another step toward facilitating transactions when it acquired NFT marketplace KnownOrigin, which allows artists and creators to showcase and exchange digital works for collectors.
The eBay vault. (Courtesy photo)
For eBay, this is part of a wider strategy to provide space for the digital exchange of collectibles as a whole. It is also making big investments in physical collectibles, including a new vault for trading cards that provides storage and a digital marketplace, and the $295 million acquisition of TCGPlayer, a marketplace for collectible trading cards like Magic the Gathering and Pokemon. Those goods will require specific tools to solve their own set of challenges, including authentication to ensure items are what they say they are, and ensure they are truly limited in quantity. Yet it is emerging alongside the digital collectibles, and it’s clear that eBay sees the two sides fitting under its tent.
“One reason that we're excited to launch the Vault is because it can enable real-time transactions for physical or digital goods,” eBay CEO Jamie Ianone said on the company’s recent second quarter earnings call. “This intersection is nascent, the one that collectible enthusiasts are increasingly exploring. This is part of the rationale behind our second quarter acquisition of KnownOrigin.”
A potential connecting point was made more clear on Monday, when Walmart entered the fray. The retailer announced a new partnership with the National Entertainment Collectibles Association that will result in a new platform, called AutoT, that enables digital collectibles.
AutoT will have a series of rare variants of collectibles and figures that are signed by stars and creators.
Here's how it works: To access the platform, customers will be able to purchase a box from Walmart that is tied to a specific pop culture property. Upon purchase, they enter the digital code found on their Walmart receipt into a personal account at AutoTVault.com. This reveals which collectible item they’ve received. Collectors will be able to store a digital collectible for up to two years free of charge in the NECA’s Vault, or have a physical item shipped to them.
Launching on Oct. 6 at Walmart’s website, the platform will debut with collectible figures from Teenage Mutant Ninja Turtles, featuring Shredder, Renet and Foot Soldier, with potential for fans to receive versions of the digital figures signed by co-creator Kevin Eastman. Exclusive lithographs from the TV icon and artist Bob Ross will also be available at launch. New products are set to drop at regular intervals, Walmart said.
A Shredder action figure. (Courtesy photo)
For Walmart, this is an extension into a new form of commerce as it looks toward the future of retail, which has long been built around physical goods. Coupled with last week’s announcement that it is building a large experience in Roblox, it’s clear the world’s largest retailer wants to have a presence wherever goods are being bought and sold. The throughline here is that digital collectibles can usher in an evolution of shopping.
“At Walmart, we are always finding new ways to bring innovation and one-of-a-kind offerings to our customers,” said Laura Rush, SVP of electronics, toys and seasonal at Walmart US, in a statement. “NECA’s unique collectibles and inventive AutoT platform offer a new type of shopping experience to shoppers, ensuring that Walmart is bringing the best in tech and entertainment to customers nationwide.”
This may be a test not only of the tools and shopping functions, but also where value is shown. Will a person find value in a digital work that can be linked to its creator in the same they would a physical work that has touched the artist's hands? In other words, can Bob Ross' resurgence courtesy of memes and YouTube translate to people wanting to own a piece of his work?
NFTs on Instagram. (Photo via Meta)
Given that art is involved, it's also worth considering what will happen when the gallery wall is removed. The ability to display and share collectibles in common spaces may also be valuable. One avenue arrived last week. Meta opened up the capability for users to share digital collectibles that they have purchased or bought on Facebook and Instagram to everyone. These collectibles can also be shared between the two platforms. Making good on an announcement it made in May, Meta said users can now connect a digital wallet and display NFTs from those wallets on the platform, The NFTs will have a shimmer effect, and public information like a description of the NFT can be displayed. The work can be attributed to both the creator and collector.
As Ianone referenced, these are nascent launches. They may not be the versions that last, but they are important steps toward pushing this form of collectibles into wide release. Provide the tools, figure out what people find valuable and new markets can take root.