Is Walmart making the right call now?

Time and again during the past year, we’ve seen how the pandemic has accelerated shifts in consumer behaviour. So it stands to reason that a retailer would respond to that sped-up pace of change by pulling forward investments to accommodate it.
That’s the lens through which to view Walmart Inc’s fiscal-year guidance, which includes $14 billion in capital spending, a significant increase from the roughly $10 billion it has spent each of the last three years. The big-box giant also announced that it would add to its costs by raising wages for about 425,000 workers, a move that bumps its average pay to more than $15 an hour.
Walmart’s shares sank as investors absorbed the news, putting the shares on pace for their biggest one-day drop since the early days of the pandemic. But Walmart is making the right call by making these investments now. If it doesn’t, it leaves a clearer path for Amazon.com Inc to continue gobbling up online market share and for grocery-centric competitors such as Kroger and Albertsons to get more of a digital foothold.
The bulk of Walmart’s capital investments this year will be on supply-chain and e-commerce initiatives. They include plans to create dozens of micro-fulfillment centres, in which backroom space at some of its stores will be outfitted with robots that can help workers pick items for online grocery orders. Grocery pickup has been a cornerstone of Walmart’s e-commerce growth, so the retailer is right to focus on ways to grow that operation efficiently. It needs to fill such orders quickly, even as each store receives more of them, while also making sure that in-store shoppers don’t find aisles clogged up by workers.
In an online presentation for investors, CEO Doug McMillon also emphasized that the company needs more fulfillment capacity to grow Walmart+, its new membership program, without sacrificing customer satisfaction scores. In other words, if one of Walmart’s buzziest new potential revenue streams is to thrive, it is going to require this spending groundwork.
It won’t be easy for Walmart to offset this stepped-up spending, which may in part explain investors’ reaction. The retailer will need to grow its fledgling advertising business, and it would help if it could draw a greater share of its online sales from higher-margin products such as apparel and home goods.

—Bloomberg