retail news in context, analysis with attitude

Walmart yesterday came out with its second quarter results, saying that total revenue rose 2.1 percent to $123.4 billion, with US same-store sales going up 1.8 percent. However, Q2 net income was down 23.2 percent to $2.9 billion.

Meanwhile, CNBC reports, “Wal-Mart's e-commerce sales grew an impressive 60 percent in the latest period, on top of last year's 11.8 percent growth. However, this quarter's pace was slightly slower than the first quarter, when e-commerce sales rose 63 percent. But prior to that, in the fourth quarter of last year, online sales were up 29 percent.”

The Wall Street Journal writes that “the strong sales figures come at a time of stiff competition among retailers facing Amazon.com Inc. While U.S. consumer spending appears strong, according to July sales data at retailers and restaurants released Tuesday, some apparel and department-store chains are struggling with customers’ changing shopping habits. U.S. grocers, of which Wal-Mart is the largest by sales, are battling over prices.”

And, the Journal writes, “Wal-Mart’s U.S. gross margin fell and operating expenses rose 3.9% in the second quarter. ‘We are not at the place we want to be from an expense standpoint,’ Wal-Mart finance chief Brett Biggs said in an interview.”

There are numerous stories about Walmart’s past and future this morning:

USA Today writes this morning that Walmart says that it is “delivering online grocery orders from more than 900 stores with ‘strong results’ in the early going, as the company's rivalry with Amazon intensifies.” The retailer says it expects to expand grocery delivery to a total of 1.100 locations by the end of the year. The paper says that “Greg Foran, CEO for Walmart U.S., said that the retailer will ‘watch closely’ if Amazon ramps up its online grocery business. But he says he welcomes the competition, not only from Amazon, but from other potential rivals, such as discount grocery chain Aldi and German chain Lidl which are also expanding in the U.S.”

USA Today also quotes Marc Lore, CEO of  Walmart eCommerce U.S., as saying, “We're seeing that customers are coming into the store when they come to pick up items. And we're saving costs by not having to pay for last mile delivery'' to people's homes.”


• The Washington Post writes that Walmart said yesterday that “food sales had grown to their highest level in five years, as Walmart expands its grocery business both in stores and online by adding more organic produce.”


• In a separate story, CNBC writes that “Wal-Mart's second-quarter results make it crystal clear the retailer is committed to growing its e-commerce business, with Jet.com founder Marc Lore at the helm of it all.

“Faced with the threat of Amazon encroaching on its turf, Wal-Mart has been rolling out initiatives like ‘easy reorder,’ free two-day shipping with no membership required, and an online grocery service, which is slated to hit 1,100 Wal-Mart stores this year … Offerings like ‘ship-from-store,’ discounted pick up in store and Wal-Mart's associate delivery tests are (seen by analysts as) ’competitive weapons’ that will help the traditionally brick-and-mortar retailer steal a larger share of the online market.”


Business Insider reports: “When Walmart acquired Bonobos and Modcloth, confusion reigned over how these trendy, upscale brands meshed with America's no-frills most affordable retailer.

“Now, it's increasingly clear that these investments were geared toward its Amazon competitor - Jet.

“You'll likely never see a Bonobos or Modcloth product in a Walmart store or on Walmart.com. Bonobos and Modcloth will, however soon be offered on Walmart-owned Jet, according to a conference call with journalists to discuss second quarter earnings … This is a clear signal of how Walmart.com and Jet.com will diverge. While Walmart is a mass-market retailer that appeals to every demographic, Jet will be geared toward the urban millennial customer.”


• Not everybody is convinced, however, and the Los Angeles Times reports that “even Wal-Mart e-commerce communications Vice President Dan Toporek acknowledges that Walmart.com and its massive inventory of 50 million distinct products will not attract the cool kids who are — or were — shopping at places such as ModCloth … ModCloth and Bonobos are being cyberbullied by their fans online, who are making fun of the brands for what they see as selling out to the corporate machine.”

Walmart has been promising that while it may own these “cool kids” brands, it has no intention of meddling in their operations and management. “Bonobos and ModCloth will not get touched,” Toporek says. “They will operate the way they always have.”
KC's View:
These stories are interesting on so many levels….

• It seems pretty clear that it is “game on” for Walmart’s battle with Amazon. I’ve been arguing here for a long time that this is destined to be a conflagration, with a lot of collateral damage. Virtually every other retailer needs to be aware of this, and preparing for it by establishing their own differential advantages.

• One has to wonder, based on these numbers, whether Walmart has started playing the same game as Amazon, in which it invests its profits in acquisitions and innovations, an approach that may have a negative impact on the short-term bottom line even as it makes Walmart more competitive with Amazon. If so, one then has to wonder how the public markets will react to such a shift.

• As better as Walmart has gotten about food, I still think there is a strong possibility that it buys a company like Sprouts … it is a Whole Foods-style play, albeit at a lower price point and with a consistency of appeal.

• I think it’ll be a cultural challenge for Walmart to adopt a bifurcated approach to the marketplace, with Walmart in one column and Jet in the other. It isn’t impossible, but it will require a strong resistance to the company’s traditional DNA which favors mass marketing, low prices, and middle America appeal.