Walmart Blows Out Q4 Ecommerce but Seeks Online Profitability

Walmart continues to see strong topline growth in ecommerce, with online revenue increasing 43% in the fourth quarter and 40% for the full year. But profit in the channel remains elusive and losses are expected to continue this year based on investments in infrastructure, people, online grocery and Store No. 8 initiatives, executives said.

“While we’ve made good progress against our strategy in recent years, we still have great opportunity in front of us,” Walmart CFO Brett Biggs told analysts on an earnings call. “We remain excited about the opportunity in grocery pickup and delivery and plan to double the current number of stores that offer same day grocery delivery in the coming year, while also adding grocery pick up to another 1,000 stores.”

In addition to ecommerce growth in Q4, Walmart saw market share gains in key categories including grocery and toys, Walmart CEO Douglas McMillon said, citing research from Nielsen and NPD Group. The latter category was hard-fought during the holidays among major retailers in the wake of Toys R Us’ 2018 departure.

“We are making progress in ecommerce,” McMillon told analysts. “Our focus remains on earning repeat visits and strengthening our assortment of merchandise. We’re expanding our assortment, improving search by enhancing our website and executing better on the fundamentals such as product reviews, inventory mirroring and on-time delivery to accomplish this.”

Inventory mirroring is a method and process for optimizing inventory positioning and storage assets closest to demand in order to shorten delivery times and reduce supply chain costs. Walmart applied for a patent on inventory mirroring in 2016.

McMillon said some of the headwinds against ecommerce profitability for Walmart include getting to a merchandise mix that drives repeat business, as well as operations costs such as order picking, shipping and gross margin on products.

“The thing that’s taking longer than what I would have guessed is to build that merchandise assortment, including the brands that we’re trying to add to a place where we got a repeatable healthy mix of business online,” he said. “So, we’re pedaling fast trying to make that happen and disappointed that it’s taken us long as it has.”

“We are still working to optimize our (ecommerce) margin mix so that we can achieve the long-term profit profile we want,” Biggs told analysts. “The team is working with a great sense of urgency to increase sales in key areas like home and apparel, which will help margin rate as well simultaneously investing in new innovative solutions.”

McMillon also spoke to the challenges Walmart – and everyone else – faces executing its operations in an evolving omnichannel environment that’s supposed to look, feel and act the same regardless of where customers engage.

“We see the future as a frictionless experience across stores and ecommerce but we have more work to do as customers raise their expectations, competition persist, and the omni retail story continues to evolve,” he said. “We fully expect the pace of change to accelerate in the next five years versus the last five years with emerging technologies come together to transform retail even further and we’re adapting.”