Will Walmart’s winning ways last?

Walmart Inc, one of the few big winners during the coronavirus crisis, just had a blowout quarter. The knock-on positive effects may last beyond the pandemic.
Bulk buying of toilet paper, bleach and hand sanitiser helped the world’s biggest retailer increase US same-store sales (excluding fuel) by a better-than-expected 10% in the three months ended on May 1. That marked the best performance in almost two decades. Going forward, sales may not jump to the extent they did during the recent nationwide lockdowns, but Walmart should still benefit from some permanent changes to shopping behaviour.

Same-Store Success
The big-box giant had two distinct advantages during the Covid-19 restrictions that forced a quarter of a million shops to close, inflicting devastation across much of American retail. First, as an essential retailer, it was able to stay open. That meant Walmart shoppers could pick up supplies of electronics and fabric that they couldn’t get at other stores alongside their grocery items.
Secondly, Walmart has been investing heavily in its online business to protect itself from the threat posed by Amazon.com Inc. That paid off. The retailer’s efforts to bolster home delivery and turn its supermarkets into a bridgehead against the online behemoth with click-and-collect pickup services at more than 3,000 stores helped it to navigate the spike in demand, as US e-commerce sales soared by 74% in the first quarter.
It wasn’t unalloyed good news. Despite the strong quarter, Walmart — like many other corporations — withdrew its full-year forecast made just three months ago. And the retailer incurred an extra $900 million of costs, owing to enhanced wages and benefits for staff and increased safety and sanitation in stores.
Fulfilling digital sales also entails higher expenses, as the retailer must do many of the things that the customer would have done in the past. As online demand rises, so do these costs, and this will be an ongoing challenge as sales migrate to the click of a mouse or tap of a smartphone.
Meanwhile, in the early stages of the crisis, there was more demand for food, whose margins can be as thin as a slice of ham, as opposed to more profitable categories such as clothing. Consequently, Walmart’s US operating profit didn’t increase as strongly as same-store sales in the quarter, and its gross profit margin narrowed by 1.1 percentage points.
There are other challenges as well. Bulk buying of soup, pasta and hair dye is unlikely to be repeated, as consumers use up what they bought, particularly if they are managing their budgets, too. More frugal shoppers could play into Walmart’s everyday-low-price hands.

—Bloomberg