mindtalks brand growth: Walmart maintains growth in Q3 as inflation takes hold – Marketing Dive – picked by mindtalks

Dive Brief:

  • Walmart’s sales continue to grow ahead of the holidays due to strong consumer spending, the rising cost of consumer goods and government stimulus.
  • U.S. sales grew to 9.3% year over year in the third quarter to $96.6 billion, with domestic comp sales (excluding fuel) up 9.2% and U.S. e-commerce sales up 8%. Sam’s Club comp sales (excluding fuel) increased 13.9%, and e-commerce sales rose 32%.
  • The retailer won market share in grocery in the U.S. amid the highest inflation level in 30 years. Sales growth for the category increased nearly 10%, with low- to mid-single-digit ticket inflation benefiting results.

Dive Insight:

One of the main factors contributing to Walmart’s growth this quarter is inflation. The Consumer Price Index (CPI) increased at a 6.2% annual rate in October, according to the U.S. Bureau of Labor Statistics.

In a call with investors, Walmart CEO Doug McMillon said the company is able to take advantage of both an inflationary and a deflationary environment.

“Our cost inflation is higher than our retail inflation, and that’s what we would want,” McMillon said. “But we’ve got lots of flexibility as we monitor price gaps to decide what we want to do with general merchandise, what we do with apparel, for example … and it becomes a mix management exercise.”

Alongside the third quarter results, Walmart raised its full-year guidance. Excluding fuel, the retailer anticipates Q4 comp sales to rise around 5% and over 6% for the fiscal year, executives said in the call. The retailer expects capital expenditures to be about $13 billion as opposed to the original $14 billion.

Price-conscious consumers may have turned to low-price retailers like Walmart and Aldi to prevent overspending on their food budget. Thanks to its store coverage, visibility and wide range, Walmart is in a better position than low-price rivals to make gains, Neil Saunders, managing director of GlobalData, said in emailed comments. In addition to grocery, all of the retailer’s segments had strong top-line growth in the quarter.

On the advertising front, Walmart Connect ad revenue helped to offset cost pressures, with the business unit’s ad sales rising nearly 240% over two years, per the company’s earnings call. In Q3, the company launched a new demand-side platform with The Trade Desk to expand offsite media offerings.

Earlier this quarter, the retailer also launched Walmart Luminate, a new system that analyzes data from Walmart’s massive hub of consumers and offers insights into audience behavior, perception and channel performance for the various brands at Walmart, explained Brent Ramos, director of product and search at Adswerve, in emailed comments.

“It is this type of consumer-centric engagement and alignment with respecting data privacy that has sparked greater brand awareness for Walmart, positive Q3 results and a bright outlook for the end of 2021,” Ramos said.

Like other retailers, Walmart is also experiencing inflation and its prices have also risen — but only modestly.

“While the impact to the individual consumer is relatedly small, as a volume business the impact to Walmart’s sales line is considerably higher,” Saunders said. Consumers are switching to Walmart to save money, he added. “The sharp increase in inflation has been felt by many households, especially when it comes to grocery shopping, and this has created far more churn in where consumers buy.”

Saunders said that higher sales, however, do not directly mean higher profits. Walmart’s consolidated gross profit rate dropped 12 basis points as a result of higher supply chain costs, CFO Brett Biggs said in the call. Walmart is one of the retail giants that chartered ships to meet holiday demand.

“We’re seeing inflationary cost pressures in some areas and our merchants remain laser focused on taking the necessary steps to mitigate supply chain congestion while working with suppliers and monitoring price gaps to manage margins appropriately,” Biggs said.

Due to higher wages, Walmart’s operating expense rate rose 20 basis points. In September, when competition for labor heated up, the retailer raised its hourly pay by $1 for over 500,000 associates. The average hourly wage for Walmart’s U.S. workers is now $16.40.

One weak spot for Walmart this quarter is its online sales, according to GlobalData’s Saunders.

“While it is true that Walmart saw explosive growth last year, given its investments in online and the fact it is playing catchup with Amazon, we believe it should be posting slightly better numbers,” Saunders said. “Improving the online experience and making the process of shopping and buying easier is critical if Walmart is to gain ground and deliver solid growth across all its channels.”

Source: marketingdive.com

 

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