Why Walmart Has an Extremely Long Runway at the Top of Retail

2 factors put company strongly ahead of the competition in the US

Author's Avatar
Jun 08, 2017
Article's Main Image

Walmart’s (WMT, Financial) recent performance has proved that the country’s largest retailer has found a way to keep improving its fortunes in a retail market that is under immense pressure from Amazon (AMZN, Financial).

As the country’s No. 1 retailer in terms of size, Walmart has the most to lose if Amazon keeps expanding at its current pace, but if you look at the past four quarters, Walmart seems to have figured out a way to keep Amazon at bay.

One of the major decisions Walmart made last year was to shut down its small format Express stores and expand the larger Neighborhood Market concept. By the end of April 2017, Walmart had 698 neighborhood market stores, compared to the 653 stores the company had by the end of April 2016, a net addition of 45 stores.

7bz0GzhmCC66wv4OKT2mTHpcuo1FEaeI4WVOGOdT41eouBWumqsJzVT6Sntq4bwynZ_Ja3FES63ntcEqkKlbL2ddsYLKHQ23SVt_caJVlcL-T98SpkQtq0k2oLWvE_yv62Ze9tYZ

It must also be noted that it was the performance of Walmart U.S. that kept sales numbers in good shape for the company. International revenues declined during the first quarter, while Sam’s Club added $385 million in sales. But it was the 2.9% sales growth, an increase of $2.141 billion in Walmart U.S. sales during the quarter, that made all the difference.

Walmart is growing at a decent clip in one of the most highly competitive markets in the world, and it is a huge accomplishment because there is no other retailer in the world that makes $75 billion in quarterly sales from a single market. The two things that have worked in Walmart U.S.’s favor are e-commerce and neighborhood markets. During the first quarter, Walmart’s e-commerce GMV (gross merchandise value) grew by 69%.

Walmart already has a store within 10 miles of nearly 90% of the U.S. population, and that number is going to keep improving as Walmart keeps adding more neighborhood stores in the country. It not only increases its reach but also offers a huge advantage over other retailers who don't have such a massive network of physical stores.

In fact, Walmart Neighborhood Markets’ comparable-store sales have far outpaced even Walmart U.S. numbers. In the last four quarters, Neighborhood Market comparable store sales grew by 6.5%, 5.2%, 5.3%, 6.2%, much higher than the 1% to 2% range Walmart U.S. was reporting. With nearly 700 stores around the country, it’s clear that Neighborhood stores have already started to make an impact.

Walmart’s comparable store sales have now increased for 10 consecutive quarters, and the growth of Neighborhood Market comparable store sales has played a huge role in lifting those numbers up. In a market where even the smallest advantage can be a game-changing one, Walmart’s Neighborhood store format’s performance, and the potential to add many more stores across the country, puts the company in the best place possible to keep its No. 1 position intact for a very long time.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.