Walmart Cites Operational Issues in Q4 Ecommerce Slowdown

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Due in large part to inventory management issues around the critical holiday period, Walmart reported a serious slowdown in its booming ecommerce growth during the fourth quarter, which increased 23% compared to a 50% gain a year earlier.

“The majority of this slowdown was expected as we fully integrated the Jet acquisition, as well as created a healthier long-term foundation for the holidays,” said Doug McMillon, CEO of Walmart in an earnings call. “A smaller portion of the slowdown was unexpected as we experienced some operational challenges that negatively impacted growth.”

The New York Times reported that these challenges included warehouses overstocked with seasonal items such as electronics and toys, making it difficult to fulfill sales of everyday products, thus damping those online sales.

“Overall, we finished the year with ecommerce sales growth of more than 40%, so we feel better about the year than the quarter,” said McMillon. “Looking ahead, we expect ecommerce growth to increase from the fourth quarter level as we enter the new year.”

Total revenue for the quarter was $136.3 billion, an increase of $5.3 billion or 4.1%. Same-store sales were up 2.6% for in the U.S. and store traffic was up 1.6%.

“Comp sales performance on a two-year stack was the best in eight years, and ecommerce contributed approximately 60 basis points to the segment,” said Brett Biggs, Executive Vice President and CFO of Walmart.

McMillon said Walmart is becoming stronger at mobile and leveraging digital capabilities, improving in-store experiences in pharmacy and money services, among others.

“We have enabled Easy Reorder online,” said McMillon. “We’re making the checkout experience easier with Scan & Go and also digitizing the returns process.”

He said acquisitions Walmart’s various ecommerce acquisitions have substantially improved the online product assortment, which has increased by nearly 75 million SKUs, while growth has also come through partnerships with Google Express and JD.com.

“We’re expanding online grocery in the U.S. and around the world and broadening our delivery capabilities in the U.S., China and other international markets,” said McMillon.

During the quarter, Walmart launched two-day shipping, and saw growth in online grocery pickup. “We’re expanding our test of same-day and next-day delivery,” McMillon said.

He said Jet.com complements Walmart.com nicely, bringing in new demographics with deeper pockets. “The Jet brand over indexed with higher-income, urban, millennial customers when we made the acquisition and we intend to build on that strength going forward,” he said.

As the cost of acquiring a new customer is cheaper with the Walmart brand, the company has been investing more in Walmart.com while reducing its marketing spend on Jet, with the exception of certain urban markets.

“Due to this change, Jet will not grow as quickly as it did in the early days but it will be well positioned where we’ve chosen to focus the brand,” said McMillon. “We’ll continue to evaluate ourselves on the total U.S. ecommerce growth number.”

Addressing the closing of 63 Sam’s Clubs in the U.S. and transforming 12 of them into fulfillment centers, McMillon said Walmart is focusing on financial viability as well as the ecommerce future.

“Closing stores and clubs is difficult,” said McMillon. “It’s obviously difficult for our impacted associates, and there is never a good time. These closures will help us run a healthier business.”

 

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