Even as Walmart’s growth moderates, the retailer’s e-commerce business is surging, powered largely by its network of roughly 4,600 U.S. stores.
The Bentonville, Arkansas-based company, now the nation’s second-largest retailer by revenue behind Amazon, reported Thursday that fiscal second-quarter revenue rose 5.9% year over year to $187.9 billion. Walmart U.S. e-commerce sales jumped 24%, while comparable sales, which include both online and in-store transactions, increased 2.6%, the smallest gain since 2020.
On the earnings call, top executives repeatedly emphasized that the company’s domestic store fleet is fueling that online growth. The locations function as mini-distribution hubs, supporting fulfillment, pickup and delivery, even as Walmart continues to invest in new brick-and-mortar stores, CEO John Furner said.
“I want to be really clear: Stores are an asset,” Furner told Wall Street analysts. “When you step back and you think about stores and their role in the [omnichannel] business, they are an asset because they position inventory, they position associates within 10 miles of 95% of the country.”
“The role of our stores has evolved as our model has changed. E-commerce sales now represent over 23% of our mix in Walmart U.S., which is double the level from just five years ago. The more omni we become, the more important our stores become — not less important, more important.”
Walmart is part of a cadre of retailers that have increasingly turned their store fleets into fulfillment centers and pickup hubs, a strategy that emerged during the pandemic. The list includes fellow discount giants Target and Dollar Tree and department stores such as Macy’s. Earlier this week, Home Depot announced it was launching Express Delivery service, leveraging its more than 2,000 U.S. stores as neighborhood fulfillment hubs to deliver products in three hours or less.
Stores evolve as model changes
For Walmart, e-commerce revenue includes not only its own sales, but also third-party sales, digital advertising and membership fees. Even though online sales are rising, the vast majority of customer purchases still occur in-store, according to Chief Financial Officer John David Rainey.
“The role of our stores has evolved as our model has changed,” he said on the earnings call. “E-commerce sales now represent over 23% of our mix in Walmart U.S., which is double the level from just five years ago. The more omni we become, the more important our stores become — not less important, more important. Between in-store shopping and digital fulfillment, we have more unit volumes transacted through our stores than ever before as they are the last-mile fulfillment nodes for 80% of our e-commerce orders and 100% of our fast deliveries.”
Company executives said the distinction between stores and e-commerce has become increasingly blurred as stores fulfill many online orders.
“Now historically, if you go back a few years, we had a store channel, we had an e-comm channel,” Furner said. “They were independent, they were vertical. ... We could measure profitability of each.”
But now those two channels are blended, he said.
“The way that these get categorized is really where you decide to pay,” Furner said. “If you pay on your phone for pickup, it’s an e-commerce order. It’s not a store order, but the store does the work. The store fulfills it.”
For a fast delivery under 30 minutes, a customer is paying on their phone and then having a Walmart store shop for them and bring it to them, explained Furner.
“So just, again, stepping back and thinking about stores, there’s more volume going through stores today than there ever has been, and it’s growing,” he said.
Drug pricing weighs on sales
Even as stores play a larger role in fulfillment, Walmart’s sales growth moderated during the quarter. Comparable sales took a hit because of new drug-price regulations, company officials said.
The 2.6% comparable sales gain for Walmart is “the slowest pace of growth in 26 quarters or some six and a half years,” according to retail analyst Neil Saunders, managing director at GlobalData.
“There are some specific points of pressure, such as maximum fair price regulation and general deflation in pharmacy, which created 125 basis points of negative pressure on the comparable figure,” Saunders said Thursday in a note.
“Even so, given the significant role Walmart plays in the lives of many Americans, the deterioration will set some alarm bells ringing over whether the consumer is running out of steam,” Saunders said. “It also raises the question as to whether the helpful gains from more higher income shoppers migrating to Walmart are starting to fade. We think both things are true, in part, but should not be dramatically overstated at this point.”
Walmart didn’t respond to an email from CoStar News seeking comment on Saunders’ remarks.