Walmart US recovers with ‘back to basics’ strategy

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Walmart’s results showed that although the US business is finally getting back on track, it must not take its eye off the core domestic division.

Walmart has realised that long-term success is dependent on low prices

Like-for-like sales at Walmart US rose for the second consecutive quarter, up 1.5% in the fourth quarter, following nine quarters of declining sales. Equally, shopper numbers at US stores improved after six quarters of falling traffic.

The improvements are testament to Walmart’s new ‘back-to-basics’ strategy which has brought a u-turn on initiatives such as SKU rationalisation in order to get back to its roots as the lowest-priced retailer on a wide array of brands. As a result, however, margins have taken a hit. Net income for the entire group dropped by 14.7% to $5.16bn (£3.25bn) in the final quarter of the year.

Consolidated full-year net sales rose 5.9% to $443.85bn (£280bn), boosted by $4.7bn (£2.96bn) from the acquisition of Netto in the UK and Massmart in South Africa.

Walmart International continued to be the company’s primary growth driver, with full-year net sales up 15.2% to $125.87bn (£79.4bn) while operating income rose 10.8% to $6.2bn (£3.9bn).

These results paint a mixed picture. In the US, Walmart is finally gaining traction by focusing on its core customers.

Initiatives such as layaway and price guarantees have struck a chord with hard-pressed shoppers, while ongoing improvements in merchandising and availability have also helped to restore confidence. The retailer learned the hard way that it cannot veer too far from its core. Low prices and a wide assortment of brands are integral to its success.

That said, the key challenge for Walmart will be maintaining this concept in the face of the growing online threat. The retailer has been scrambling to make up lost ground in the field and crucially now has a leadership team in place with the relevant experience to drive this forward.

Walmart has been planting big boxes for the past 50 years but, like its global peers Tesco and Carrefour, is struggling to maintain its relevance in today’s digital world. In future, its bricks-and-mortar strategy must become much more event-driven and supported with exclusive ranges to avoid direct price comparisons.

Walmart has the opportunity to leverage its physical store base. However, more needs to be done to create a seamless shopping experience across all channels.