The Digital House that Walmart Built

As an analyst for Moody’s, it wasn’t exactly the kind of comment you’d expect about Walmart’s latest earnings. But at CNBC this week, Charles O’Shea summed up how the retail giant turned in a strong performance in the fourth quarter—while the rest of the industry was soft. “If you build it or invest in it, they will come,” he said. “And that’s what happened with Walmart.”

December sales, which only came in last week because of the government shutdown, fell 1.2% across the sector, according to the Commerce Department, the biggest monthly drop in more than a decade. Walmart, however, bucked those figures. It beat analyst estimates for revenue and earnings per share in the quarter, and reported net income of $3.7 billion, a more than $1.5 billion gain over the prior year. 

According to Denise Kramp, senior client partner and North America retail sector leader at Korn Ferry, it was indeed the heavy digital expansion structure Walmart built that paid off. “They invested deeply in buy online and pickup in store and extended aisles through e-commerce and other companies they have acquired,” Kramp says. She also points to Walmart’s online grocery delivery service and its buy-online-and-pickup-in-store stores option exceeding expectations. To be sure, Walmart’s e-commerce sales in the quarter grew 43% in large part because of its those fairly new grocery services. Moreover, the retailer projects e-commerce sales to grew 35% this year.

In fact, UBS retail analyst Michael Lasser says while Walmart is doing well with its online grocery services, it could do better with more traditional e-commerce offerings, such as apparel and home furnishings.

Despite the holiday season getting off to a strong start, the retail sector tumbled as 2018 wound to a close, first on trade concerns and then as a result of the shutdown. Predictions for an impending recession further put consumers and investors on edge. Investor skittishness has remained so far this year — after sending Walmart shares as high as $102.34 following its earnings report, the stock has given back all of those gains and as of midday Wednesday was trading below its $99.39 per share price the day before it announced results.

Craig Rowley, a senior client partner with Korn Ferry who specializes in retail, says Walmart needs to continue to show agility in using digital technology to better target and create personalized experiences for consumers to keep the momentum going in 2019.

Authors

  • Craig Rowley

    Senior Client Partner

    Bio >
  • Denise Kramp

    Senior Client Partner, North America Retail Sector Leader

    Bio >