Times are good at Walmart. On Wednesday, Walmart reported 2018 second-quarter earnings, which beat expectations both on adjusted earnings per share ($1.29 vs. $1.22 expected) and revenue ($128.03 billion vs. $125.97 billion expected).
Despite having shrinking margins, due to both increases in transportation costs and strategic pricing initiatives, investors were obviously pleased. Walmart Inc. stock finished the day at a 9-percent increase, a jump three times the size of what was expected by the market.
It is certainly a good economy for the prototypical Walmart shopper. Low employment rates and tax cuts mean that average consumers have more money to spend at stores.
Even then, the reaction shows that Walmart performed stronger than expected, and in many ways: Same-store sales grew 4.5 percent domestically due to traffic growth, e-commerce increased in line with a 40-percent year-over-year growth target, and reports are that its e-commerce website is significantly improved.
Still, I found the most excitement coming from solidifying of the grocery units. Domestically, the landscape is changing as approximately 20 percent of Americans report shopping for groceries and household consumables online.
Whereas not all consumers may be comfortable with entire grocery transactions being done online (shopping, purchasing and delivery), and even for those who often do not do all of their grocery shopping online, Walmart recognizes that consumers want a choice of shopping wherever and whenever they want.
Online order with pickup, although reducing in-store opportunities for cross-sells and up-sells, does allow the retailer to gather information about shopping habits, which it can use for customized offers and learn about its consumers. It has been very successful, as consumers appreciate both the convenience and time savings.
As Walmart now begins to push for grocery delivery (they plan to reach 40 percent of U.S. households), one can expect it to be top of mind for consumers who have already seen improvements in produce quality and aggressively priced grocery items.
If they can execute, these loyal in-store shoppers may also turn to appreciate the convenience of online grocery shopping.
Internationally, Walmart is also pursuing growth in the grocery category. In Mexico, 40 percent of Mexican stores offer “delivery and click.” In China, Walmart engaged JD for its Dada app, leveraging its delivery business and spanning over 200 stores, providing one-hour delivery via a platform that matches people and scooters to deliver.
It is experimenting with a high-tech store in Shenzhen, China, where onsite retail mixes with online to deliver within 1 mile within 30 minutes.
So yes, Walmart benefited from a strong economy, which favored its domestic target market. Even Sam’s Club did well. However, still, I see many reasons to be optimistic about Walmart’s adaptation to the changing landscape.
Walmart did very well by improving its e-commerce growth and performing some key changes (closing out in Brazil, acquisitions and partnerships in China and India, for example), but it’s the grocery growth that makes me excited.
Consumers are finally ready for a seamless omni-channel grocery experience, and it seems that Walmart is ready to meet that demand.
Simon Blanchard is an associate professor of marketing, and the director of the MBA Certificate for Consumer Analytics and Insights at the McDonough School of Business, Georgetown University.