Walmart reaps gains as it seeks to reinvent itself

Walmart, the world’s largest retailer, has seen its shares surge about 40 percent year to date, taking its market value close to the US$300 billion mark.

The company has found its own way to survive in the challenging retail market. Following a deep consolidation in the bricks-and-mortar supermarket industry over the past two decades, Walmart now has over 10,000 stores worldwide, enabling it to compete with e-commerce giants like Amazon.

On Nov. 16, Walmart shares soared 11 percent to rise above US$100 for the first time. That came after the retailer reported strong growth momentum in third-quarter earnings, which rose 4.2 percent to US$123.2 billion. The adjusted net profit was up 3 percent at US$3.1 billion.

Revenue and profit growth, both in single digits, seems marginal compared with whopping growth rates posted by internet giants. However, the company has shown its capability to buck the trend as e-commerce giants reshape the retail environment.

Walmart raised its full-year earnings expectations to US$13.5 billion to US$13.8 billion, exceeding the 2008 peak of US$12.7 billion. That means the company will register a net profit that is more than five times of that of Amazon.

Also, Walmart has continued the steady growth streak since 2015. Given this, it’s understandable that it posted a 41 percent rally in share price year to date, and spiked nearly 80 percent since its 2015 trough.

The 55-year-old retailer has been able to reinvent itself with new technology. In the internet era, if you can’t beat them, join them.

The Arkansas-based company reported strong growth online, with e-commerce sales soaring 54 percent in the fiscal third quarter ended October. Digital sales now account for 20 percent of its total sales. Walmart built its e-commerce site, walmart.com, in early 2000. Also, it spent US$3.3 billion to acquire Amazon’s biggest rival Jet.com last year.

Shoppers are paying more attention to the purchase experience on top of better price when making online purchases. That includes delivery, trial and returns. E-commerce giants like Amazon, Alibaba are aggressively expanding presence offline in order to cater for customer needs. Amazon acquired Whole Foods for US$13.7 billion this year, and libaba also acquired retailers including Intime Department Store, Suning Electronics, and Lianhua Supermarket.

That means traditional retailers like Walmart are expanding into online sales, while e-commerce giants are actively building offline outlets. The key is to complete the online-to-offline channels. There will be more clear division between brick-and-mortar or online retailers in the future, and big retailers have to be strong in both online and offline, according to Alibaba founder Jack Ma.

But it’s easier said than done. Amazon has made a heavy bet on Whole Foods, with the deal enabling it to control more than 450 supermarket outlets across North America. By contrast, Walmart owns over 5,000 supermarkets in the US alone, which gives it a huge edge in logistics, procurement and offline services.

Walmart’s online sales are currently less than a tenth of that of Amazon. We are heading into a new retail world, so let’s just wait and see what the future holds for the retail giants.

This article appeared in the Hong Kong Economic Journal on Nov 20

Translation by Julie Zhu with additional reporting

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