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September 28, 2016

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    EXPERT COLUMN: Walmart Blows Cool Wind for U.S. Holiday Season

    Analyst foresees 'nervy holiday season' ahead for world's largest retailer

    By Stephen Springham

    On the heels of Wal-Mart Stores Inc.'s fiscal third-quarter financial results that netted an earnings gain of 2.8 percent alongside same store sales (excluding fuel) slippage of 0.1 percent versus 1.7 percent comp growth a year ago, Stephen Springham, senior retail analyst at Planet Retail, shared the following observations on the world's largest retailer's near-term outlook.

    "Three quarters of results and a hat-trick of disappointments - Walmart U.S. again failed to achieve its guidance of flat comps in Q3, reporting a decline of 0.3 percent. This was not entirely unexpected as an already fragile consumer environment has not been helped by the government shutdown. A nervy holiday season is undoubtedly in prospect in the US.

    "In what is likely to be a highly promotional festive period, Walmart has already fired a couple of opening salvos by improving its layaway terms and launching its one day ‘Cyber Event’ one full month ahead of Black Friday. But the nervous and challenged U.S. consumer will not part with his/her cash freely.

    “But there is some comfort for the longer term. Walmart’s Investor Day in October revealed a number of watershed issues – that the number of new small stores (Neighborhood Markets) openings will next year exceed Supercenters. This is welcome confirmation that Walmart has fully cracked small stores and has a sustainable twin development strategy going forward –the ‘ecosystem’ approach to supply chain is as innovative as it is efficient. Supercenter development has not receded by any means, but will inevitably see a growing shift towards renewals, refurbishments and relocations, as opposed to new builds.

    “The other watershed issue is less positive but equally transforming – targets for new floor space development at the International division have been unceremoniously slashed (Walmart now forecasts that it will add 14 million square feet this year internationally, against an original target of 20-22 million square feet).

    "Although the finger could be pointed at individual markets, this is fundamentally a collective issue, namely that the International division is at a crossroads and needs to reappraise. In short, the age of relentless acquisition and unbridled physical expansion is over. The company is being forced to take stock of its international position and plan for the longer term. This is unlikely to herald a major retrenchment or rationalization programme, but new priorities and plans will have to be drawn up – ‘quick wins’ have largely been exhausted. Carrefour CEO’s recent declaration of ‘an end to imperialism’ should not be lost on its US-based peer. ”

    Stephen Springham is a senior retail analyst at Planet Retail.

    By Stephen Springham
    • About Stephen Springham

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