Falling foot traffic and tougher competition have pushed Walmart to slash its sales forecast for the year, cut back on superstore openings and invest more in smaller stores and e-commerce.
Sales in Walmart’s U.S. stores have fallen for six straight quarters, but e-commerce sales grew by 24 percent in the second quarter. The Bentonville, Arkansas, retailer expects net sales to grow annually by 2 to 3 percent this year, down from earlier projections of 3 to 5 percent, Doug McMillon, the company’s CEO and president, said at an investor’s meeting Wednesday.
Walmart has historically grown its U.S. profit by expanding smaller discount stores called neighborhood markets, which sell home goods, clothes, electronics and other products but not groceries, to supercenters, which include groceries. That drove up traffic as people returned to buy perishables and purchased non-perishables as well.
“Now most of the discount stores have been converted, so there’s less room for growth,” S&P Capital consumer staples equity analyst Joseph Agnese told International business Times. “McMillon [CEO] plans to acquire square footage growth with neighborhood markets. But they’re tiny stores. It takes a lot to generate sales of just one supercenter.”
Walmart said it would slow store openings next year, opening just 60 to 70 supercenters next year compared to 120 this year. But it plans to open 180 to 200 neighborhood market stores next year and to accelerate online product offerings to expand global e-commerce sales by 25 percent next year.
“There is a growing consensus that the future of retail is not just in-store and not just online,” McMillon told investors. “The winners in retail will be those that can put them together. Frankly, we think we’re already doing the harder part. We have the stores, the associates, and the expertise in the physical world that others will need to build.”
His comments come amid reports that giant Internet retailer Amazon.com is opening its first physical storefront in Manhattan and planning to open outlets at other locations to bolster same-day delivery service. Walmart has e-commerce websites in 11 countries and stores in 27 countries across the Americas, Africa, Europe and Asia.
While growing among the fastest in the retail industry, Walmart’s online sales only represent about $10 billion, or 2 percent, of the company’s revenue, according to trade publication Internet Retailer. Rivals Target, Costco and Home Depot each have bigger e-commerce operations when measured as a proportion of revenue. Dollar stores have expanded aggressively in the past decade to offer more groceries, taking a bite out of Walmart’s customer base. And other competitors like Kroger are growing sales and traffic by focusing on services provided by fishmongers and butchers as well as growth categories like organic and gluten-free food selections, Agnese said.