Walmart and Target provide a reminder that the omni-channel retail re-balancing is a long game

Last year, the realities of the Vaccine Economy kicked in for the likes of Walmart and Target as the soaraway online sales of the COVID crisis settled down into a new omni-channel balance. While this was completely predictable, it sent short-termists on Wall Street into a panic as the growth rates slowed down. 

Keep calm and carry on was the only realistic option for the retailers and play a long game. This week, both Walmart and Target reported their latest quarterly numbers and provided some updated insight into the omni-landscape. 

For Walmart, the headline news was that Q1 2024 e-commerce sales were up 27%, the highest year-on-year growth since Q1 2021 when they hit a high of 37%. (Both numbers are still well behind the staggering 97% growth level in Q2 2020 at the height of the pandemic, but comfortably better than the one percent recorded in Q1 2022.)

John Furner, CEO of Walmart US, said he was “really proud” of the performance in e-commerce in the first quarter:

That's a combination of a few things. We noted growth in pickup and delivery, the significant growth in marketplace sellers. I think what's encouraging behind that number is the number of sellers who are using the services that we offer, like our fulfillment services, which gets more of the assortment delivered in one or two days. We see pretty significant increasing conversion rates when a seller is using fulfillment services. You can deliver within two days [and] that also leads to growth in the advertising business. This ability that the team has developed for sellers and suppliers to reach groups of customers that are targeted, it's really improving and I think that's definitely driving the results there. 

He added: 

The team has done a lot of work in the last year to improve overall customer experience. We measure something called CX scores, which looks at our assortment, the number of sellers, the quality of the product display pages, and they are really in the details of the business. And the last quarter acceleration really across the board in e-commerce, pickup and delivery were very strong. 

But we do look at this entire business as part of the total omni-channel offering, and that's really important because when we talk about pick-up and delivery at stores, that does include e-commerce orders where a customer is ordering something in general merchandise. It just happened to be that the merchandise, the items are in the store. So in effect, we shortened 'the last mile', which helps not only speed and time, but also helps the cost of the transaction.

That said, there are “mix challenges”, he noted: 

General merchandise is certainly stronger in e-commerce and stronger in the marketplace. The trend for the quarter to date was just a couple of weeks is very reflective of what was happening at the end of the first quarter. But where we have new items, new brands, we have a lot of examples of digitally-native brands that we found somewhere in the media or social media that are doing well. That actually is inclusive in food as well…Food has definitely grown faster along with the consumables. The health and wellness growth is something that we didn't really expect going into the year that has accelerated quite a bit over the last couple of months. 

So as we look forward, some of the things that are harder to tell right now. The general merchandise impact has been going on for the last three quarters or so, but there are impacts from other things like tax refunds, the weather, some funds out there. So [it’s] a little unclear how much of this is temporary in the month that we're in versus what we'll see the rest of the year

He added: 

But within the mix challenges in the first quarter, which is a real positive, is the performance of the supply chain. The supply chain versus last year is in much better shape. The team is performing. So there's a lot of tailwind that's coming from our supply chain team and they're ahead of our internal plan. So that's a real positive.

The tech-enabled ecosystem and marketplace is also delivering learnings that can be pushed out to the rest of world, said Judith McKenna, CEO of Walmart International: 

We've seen some really strong progress on that internationally with a lot of leverage from US learnings that we've been able to apply, particularly from a marketplace perspective where we're building out a global marketplace capability. We've just launched Walmart fulfillment services in a number of our markets. So that's really been enabling that on the ecosystem. India is probably one of the better examples that we have, although Walmex has been another great example of building out that ecosystem. Putting the customer at the center of it and using our digital capabilities to figure out how we serve them best in a simple and effective manner. 

Still off target

Over at Target, the mood wasn’t as upbeat as the retailer warned it is losing around $500 million a year to rampant shoplifting. Comparable stores sales grew 0.7 percent year-on-year, offset by a decline in comparable digital sales.

CEO Brian Cornell pointed to the ongoing re-balancing of the omni-channel mix during the quarter: 

The mix of in-store shopping has been growing for well over a year now as consumers have become increasingly comfortable in public places. This has led them to choose more in-store visits, causing in-store sales growth to outpace digital in the first quarter, both this year and a year ago.

Notably, even within the digital channel, our same-day services, which rely entirely on our stores, expanded more than 5% during the quarter. As usual, this increase was led by our drive up service, which saw growth in the high single digits. As more and more of our guests embrace the speed, convenience and reliability it provides. In total for the quarter, more than 97% of our sales were fulfilled by our stores.

The current macro-economic headwinds are causing problems, he added:

Even as we navigate through multiple short-term challenges, we remain focused on making Target stronger and better for all our stakeholders over the long-term.

Right now, our team is rallying around a focus on retail fundamentals to ensure we're staying reliable and affordable for our guests, and that were translating key points of difference, like our physical proximity to the vast majority of US shoppers, and our emphasis on a joyful guest experience into unmatched ease and inspiration for our guests as we continue to grow and scale.

My take

We will lean into newness, we will lean into affordable joy, we will lean into areas where the guests also are telling us that they're finding our value proposition to be relevant. 

So says Christina Hennington, Target’s Chief Growth Officer. It’s almost a mission statement for the new realities of the Vaccine Economy. Having been a leader in the omni-channel retail revolution and one of the first to recognise the importance of the store as a hub for online business, Target’s having to re-learn some tough lessons right now. Walmart is perhaps in a happier place. But this remains a long game and there’s still a lot of landscape settling to be done.