Walmart CEO, Doug McMillon, recently sat down with CNBC’s Becky Quick to discuss the transformation of the world’s largest retailer. Doug was appointed in February 2015 and is only the 4th CEO in the history of Walmart. Doug started working in a Walmart warehouse while in high school.
Walmart focuses on servicing 275 million customers per week. They have a particular customer in mind when they think about who they serve and have shops within 10 miles of 90% of Americans and within 5 miles of 70% of Americans. 10% of the TOTAL US retail sales are Walmart!
Doug’s transformation plan focused on improving customer experience to serve customers better.
- Walmart invested in employees: Walmart decided to spend more to associates (employees) by raising the starting pay and investing in more training. This action signalled an investment in their people to provide better service to their customers. Walmart is the most significant private employer in the US, with over 1,5 million associates.
- Walmart reinvested in the stores to improve merchandising, in-stock and faster check out solutions to better the overall customer perception and experience of Walmart.
- Walmart invested in e-commerce by purchasing Jet.com for $3 billion and making Mark Lore head of the Walmart e-commerce.
Walmart had been through a transformation before
- Walmart introduced groceries in the late ’80s in a store in Washington. Walmart had not sold food before that date and historically focused on general merchandise.
- The commitment to grocery required substantial investment to sell a low margin product. Walmart made investments to create its distribution infrastructure to have low cost and reliable grocery supply.
- Walmart’s desire to save the customer time and money resulted in the introduction of food.
- Walmart also initiated international expansion during this period and launched Sam’s Club.
The result and realisations
Walmart focused on a mix of food, general merchandise and pharmacy to achieve a more significant “basket” per customer visit.
- The Walmart brand is powerful, and that brand has translated well to the e-commerce offering. Walmart.com is the primary focus of e-commerce efforts. Walmart.com has succeeded in food, but improvements in assortment and service related to general merchandise are required.
- Walmart has 11,300 stores worldwide. Stores have proved to be an asset and customers find value in stores for the weekly shop for fresh and perishable food and consumables. These weekly shoppers generate store traffic and make the stores a viable asset. The weekly food and consumables basket it complemented with general merchandise.
- Walmart is a leader in food retail. Food retail is challenging and low margin, making it difficult for competitors to enter the category quickly.
- Walmart has provided customers with more fulfilment options with home delivery, instore purchase and curbside pick-up. The basket size for pick up and delivery is larger than the in-store only shopper basket size. While pick-up and delivery are growing, in-store traffic also continues to grow.
- Walmart is augmenting stores to include other services like health clinics.
Future initiatives
- Walmart is testing in-home delivery where Walmart associates (verified and vetted Walmart associates) deliver fresh produce to your fridge in your home. The service is called “Walmart In-Home”. Customers that have tried the service during the pilot phase have continued with the service.
- This experiment is the idea that Walmart will automatically stock your home for you with the weekly and monthly consumables and groceries you always buy.
- In this future, Walmart will deliver products that they think you will like. If you don’t, you can send it back when they do their next delivery.
- Walmart is also looking to automate tasks that people do not want to do. For example, a shelf merchandising robot scans shelves to ensure stock is correctly displayed. And, a “fast unloader” using computer vision to pre-sort merchandise in storage areas.
What does this mean for AXIAM investors?
We do not make predictions, but we do continuously analyse if Walmart remains relevant in the lives of the consumers it serves. At the present moment, the answer is yes.
In spite of all the investment in stores, associates and e-commerce and innovation, Walmart continues to generate free cash flow of about $17 billion in 2019 according to Morningstar.
At AXIAM, we have spent many years growing wealth with an investment strategy inspired by the wisdom of great investors like Warren Buffett. We buy shares in companies that pay regular, increasing dividends, because they own great brands that are known, loved and used around the world daily, and we keep them for a long time. Sign up for our newsletter, or contact our fund management team to invest.