Shifting consumer behaviors and preferences—including a move toward more online grocery purchases—could threaten Walmart's financial performance if the company fails to respond quickly enough or to meet shoppers' heightened convenience expectations, Walmart stated in its 2021 annual report.
The report and proxy statement, released ahead of Walmart's annual shareholders meeting on June 2, notes that Walmart is banking on investments in digital infrastructure, store remodels and other customer initiatives—rather than new store openings—in fiscal 2022 to help drive net sales.
“The success of this strategy will depend in large measure on our ability to continue building and delivering a seamless omnichannel shopping experience for our customers,” the company stated in identifying its risk factors for the year ahead.
In addition, the company continued, “a greater concentration of e-commerce sales, including increasing online grocery sales, could result in a reduction in the amount of traffic in our stores and clubs.” That would pose a threat because it would reduce lucrative cross-selling opportunities for consumers shopping in-store—those who might add, for example, a planter or two and and a bag of fertilizer to their cart when they stop in for cereal and milk. A loss of such opportunities “could reduce our sales within our stores and clubs and materially adversely impact our financial performance,” Walmart stated.
Additional risk factors the company flagged include continued uncertainty around the duration and lingering economic impacts of the COVID-19 pandemic, competitive pressures that could arise from rival retailers' M&A activity, and potential costs associated with climate change—whether in responding to extreme weather events or complying with new climate-related regulations.
Walmart also called out the need to adapt quickly to changing consumer tastes. Failure to respond to consumers' shifting preferences, including those related to sustainability, "could negatively affect our reputation and relationship with our customers," potentially resulting in a loss of market share, the company stated.
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Walmart U.S. net sales totaled $370 billion for fiscal 2021, up about 8.6% from $341 billion in fiscal 2020. (Comp-store sales for U.S. locations were up 8.6% for the year, the company reported in February.)
Additional numbers of note from the report:
- E-commerce sales accounted for approximately 11.6% ($43 billion) of Walmart U.S.'s overall net sales of $370 billion in fiscal 2021, up from 7.1% ($24.1 billion) in fiscal 2020.
- Despite incurring $4 billion in COVID-19-related costs in fiscal 2021, Walmart's operating expenses as a percentage of net sales were flat for the year vs. fiscal 2020. Strong comp sales and lower business restructuring charges than in the prior year accounted for that stability, the company reported.
- 54% of Walmart's 2.3 million associates worldwide identify as women, the company stated. In the U.S., 47% of 1.6 million associates identify as ethnically diverse. (Thirty-four percent of employees in Walmart U.S. management are people of color, Walmart CEO Doug McMillon noted last June.) Among Walmart's board members, three of 12 are women; two are people of color.
- Low prices, more convenience continues to be the name of the game: "We are maintaining our everyday low-price discipline while investing in our omnichannel offering which continues to resonate with customers around the world who are increasingly seeking convenience," Walmart stated.
- Among all 50 states, California has the highest share of smaller-format Walmart stores (primarily Walmart Neighborhood Markets) to Supercenter locations. No. 2 is Walmart's home state of Arkansas. Most of the nearly $14 billion in cap ex planned for fiscal 2022 will support e-commerce, technology and supply-chain initiatives and store remodels rather than new store or club openings, Walmart noted.
- Special cash bonuses paid to full-time hourly associates (who account for more than half of Walmart's hourly workforce in the U.S.) amid the COVID-19 pandemic currently have totaled $1,200; cash bonuses to part-time hourly workers total $600.
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