retail news in context, analysis with attitude

Walmart said yesterday that its Q4 profit was down 21 percent, as earnings went from $5.6 billion to $4.43 billion, on net revenue that was up 1.4 percent to $128.79 billion, and same-store sales that were down 0.4 percent.

The Bloomberg story about Walmart's results said that the company's new CEO, Doug McMillon, promised "to accelerate openings of its better performing smaller-format stores" as a way of addressing the poor results. The story says that "Wal-Mart plans to double openings of  its Neighborhood Markets and Walmart Express, to 270 to 300 in the U.S. this year.  That’s because as Walmart U.S. comparable sales dipped as a whole, while Neighborhood Markets saw 5% growth. The smaller-format Express on a comparable basis also saw gains in the mid-single digit to double-digit percentage. While the company’s supercenter traffic has been hurt by consumers’ not making the mid-week fill-in trips, those smaller stores have seen increased fill-in purchases.

The company also "blamed a shorter holiday season, winter storms that led to closings of over 200 stores companywide and a cut in food stamp benefits that led to a decline even in its traditionally strong grocery business," Bloomberg writes. And the current quarter isn't expected to be much better: "Continued winter storms have led to a sales decline so far this month and that the global retail landscape remains challenging, hurt by low inflation, relatively high unemployment and 'fragile' consumer confidence.

"'The retailer also expects increased health-care costs because it’s seen increased enrollment from employees that see its plans as better options than what’s available in the market,' Walmart U.S. chief Bill Simon told reporters on a conference call."

McMillon, Bloomberg writes, "promised continued investments on the online and mobile front and leveraging Wal-Mart’s physical stores to generate growth. Online sales last year rose 30% to more than $10 billion, though it still pales against the retailer’s total sales of $473 billion. One area Walmart may be eying more closely: online grocery delivery.  The company said its grocery delivery test expansion to Denver in October has gotten a great response."
KC's View:
I'm not sure the degree to which Walmart is persuading the investment community. There are folks out there who already are predicting that Bill Simon could lose his job pretty soon if there is not a turnaround.

Here's what I think.

Walmart has plenty of money … so it can afford to do what is necessary to get things right, both in terms of pricing and format. The problem is that Walmart's competition isn't standing pat … from Amazon to dollar stores, they're all moving forward, sometimes more nimbly than Walmart can.

I also have had a chance to peruse some Neighborhood Markets and Express stores recently, and I have to be honest…I find them to be uninspired, offering very little in the way of differential advantages. That's not to say that people aren't shopping there, but they don't strike me as being very well thought out, and certainly not very well maintained.

If this is what Walmart is counting on to improve its fortunes, they may have bigger problems in Bentonville than they know.