Report: Walmart focuses on Millennials, multichannel while facing a ‘perfect storm’

Wal-Mart Stores is facing a “perfect storm” in trying to grow top line revenue while also trying to meet technology and demographic changes, according to Moody’s vice president Charlie O’Shea, who released an investor note on the retail giant Wednesday (March 9).

He said the pressure is heavy on the retailer’s core business – physical store sales – at the same time it must invest for the future. O’Shea said flat household income levels are constraining sales for Walmart’s core customers – lower- to middle-income consumers – at the same time the company facee deflationary challenges in key product categories such as food. There is also the negative impact of currency exchange with international sales relating to the strong U.S. dollar.

That said, O’Shea applauds Wal-Mart efforts to transform itself into a multichannel retailer – multichannel meaning sales through various forms of traditional and e-commerce sales and product delivery. He said the growth strategy employed by Walmart is costly now but the growth strategies that include steep investments in people and technology will bolster long-term growth prospects.

He said Wal-Mart online sales of $14 billion last year, grew 12% annually, following 22% growth for the prior year. Moody’s believes this is a sizable amount for a brick and mortar retailer, noting that Rome wasn’t built in a day.

“Walmart is morphing into a multi-channel retailer and taking an upfront financial hit in the process,” said O’Shea. “These investments are crucial for any brick-and-mortar retailer that wants to remain competitive, and will position Walmart for long-term growth.”

THE MILLENNIAL PUSH
Steve Bratspies, chief merchandising officer for Walmart U.S., told analysts Wednesday that part of the future success in bridging online with brick and mortar lies in the expansion of Walmart’s online grocery business. He also spoke about Millennials and the impact they are having on Walmart.

The Pew Research Center identifies the Millennial generation as adults between the ages of 18-34 during 2015. Pew reported in May 2015 that more than one-in-three American workers are Millennials and had surpassed Generation X to become the largest share of the American workforce. Pew based its findings on Census Bureau data. Pew estimated in the May report that Millennials workers totaled 53.5 million, with Gen X at 52.7 million. Gen X are those who were ages 35-50 in 2015.

“We expanded our online grocery business to 22 markets and we’ll do about another 20 markets this year as we continue to invest in that business and continue to find the intersection of physical and digital,” Bratspies said during his speech at the Raymond James Institutional Investors Conference Wednesday in Orlando. “We are getting great responses from our customer on this for satisfaction scores already in the mid-90s. So we feel good about where we are going on that.”

Bratspies said the retailer continues to focus on the Millennial generation, which the company says accounts for 79 million consumers. He said they began later in life with household formation, but are moving faster and making up ground. He said 48% of them are multi-cultural, versus 28% of the boomers, which is a dramatic shift and dramatic change in the business.

“They are the most value driven generation that was seen in my lifetime, slightly ahead of Gen- X but they are very, very focused to value,” Bratspies said. “Roughly 66% of Millennials have shopped at a Walmart store in the past month. And they are more likely than the total population to shop Walmart. So it’s a very important customer to us, the one that aligns very well with our business.”

He said Walmart has increased its market share with Millennials by 4.5% in the past few years because they like value pricing, expanded baby selections and the number of convenient locations they can choose from including online orders.

OTHER DEMOGRAPHIC, CHANNEL FACTORS
While Walmart does cater to lower income households, it continually says higher net-worth households also shop its stores regularly.

The in-store only customer spends an average of $1,400 annually with Walmart, while an online-only customer will spend around $200, according to Bratspies. He said customers who shop stores and online spend about $2,500 with Walmart annually, which is the core reason it continues to invest in becoming a multichannel retailer.

One other piece helping Walmart to bridge the gap between physical and digital is its mobile app. He said the Walmart app is one of the top three apps in retail with tens of millions of users as more features continue to be added, such as Walmart Pay. The mobile payment option at checkout is being tested in limited markets.

Bratspies said it’s “unbelievably simple” to use and Walmart will roll it out to the rest of the country during the first half of this year.