Walmart's Online Sales Growth Lags as It Confronts Challenges

Walmart has been making big investments in its online business as it tries to adapt to the shifting preferences of global shoppers and to keep pace with its rival Amazon.

But Walmart’s online sales growth hit a speed bump in the company’s fiscal fourth quarter, which included the critical holiday shopping season. Online sales grew 23 percent in the United States during that three-month period, the company reported on Tuesday, less than half the rate of growth in each of the previous three quarters.

Walmart’s chief executive, Doug McMillon, said “operational challenges” at the company’s fulfillment centers during the holidays were responsible for some of the slowdown.

Walmart said that a large influx of electronics, toys and other seasonal items had made it difficult to fulfill sales of everyday products.

The slowdown reflects a broader challenge at Walmart, which has dominated the retail industry for decades with its extensive store network but is now playing catch up in the e-commerce realm with Amazon, which captures half of all online spending.

“We are building a business,” Mr. McMillon said on a call with analysts on Tuesday. “We are learning something new.”

Despite the slower pace of online growth, Walmart’s total sales increased 4.1 percent, to $136.3 billion, during the quarter, which ended Jan. 31.

That was not enough to impress Wall Street. Walmart shares dropped nearly 9 percent in early morning trading.

On a per-share basis, Walmart earned $1.33 in the fourth quarter, short of the $1.37 that analysts had expected. Operating income fell 28 percent, to $4.5 billion.

Walmart has expanded its e-commerce offerings by purchasing Jet.com and the online clothing retailers Bonobos and Modcloth. Analysts have nonetheless questioned how Walmart plans to integrate the acquisitions into a cohesive online retail strategy.

On Tuesday, the company said it would focus its broad push for new customers on Walmart.com and not Jet, a less-recognizable brand tailored to more urban, higher-income customers.

Walmart spent a $3.3 billion to acquire Jet in 2016. At the time, it was the largest deal ever for an e-commerce company, although it was not clear how the two brands would mesh. “Jet will go through adjustment but it will grow again,”’ Mr. McMillon said on Tuesday.

Walmart’s lagging growth online was not entirely unexpected given that the Jet acquisition was responsible for of the large growth rates of previous quarters. But Mr. McMillon acknowledged that the fourth-quarter slowdown “was a bit more than we planned.”

To increase growth again — Walmart said it expected online sales to rise 40 percent over the next year — the company is accelerating its web-based grocery business, increasing the number of stores where customers can order food online and pick it up in stores. Walmart is also experimenting with home delivery in the United States and in Asia, where it recently signed a partnership with the Japanese e-commerce giant Rakuten to deliver groceries.

Still, finding ways to integrate Walmart’s stores with its e-commerce strategy is costly. Last week, Walmart announced that it would offer members of its Sam’s Club unit free shipping of online orders for an annual fee of $100.

As part of that effort, Walmart said it would convert a Sam’s Club store in Memphis into a e-commerce distribution center and planned to open more such centers elsewhere in the United States in the coming year.

The company closed a total of 63 Sam’s Club stores during the fourth quarter, affecting more than 9,000 workers. Walmart said that it would try to find new positions for as many of the employees as possible, but that some would probably end up out of work.

The restructuring at Sam’s Club was among the factors that drove profits down for the quarter. Even without the restructuring and other one-time charges, the company said, operating income would have fallen for the quarter.

Let's block ads! (Why?)