Takeaways from Walmart’s 47th Annual Shareholders’ Meeting

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KEY POINTS

The Fung Global Retail & Technology team attended Walmart’s 47th Annual Shareholders’ Meeting, held in Fayetteville, Arkansas. Below are takeaways from the meeting:

  • Walmart is moving in the right direction.
  • Walmart’s financial framework calls for growth and wise spending.
  • Walmart is implementing new delivery methods such as click and collect.
  • The new delivery initiatives save customers money and time.
  • Walmart is inventing the future of shopping, again.
  • Walmart’s culture is incorporating more risk taking.
  • Walmart is working to improve price gaps on private label.
  • Private label can leverage sourcing to offer unique products.
  • Strong fiscal 1Q18 results were the result of two years of investment.
  • Walmart has many other levers to improve performance.

The 47th Annual Walmart Shareholders’ Meeting

The Fung Global Retail & Technology team attended Walmart’s 47th Annual Shareholders’ Meeting on June 2 in Fayetteville, Arkansas, near the company’s headquarters.

The company holds meetings for its associates during the week running up to the shareholders’ meeting, which lasted for three hours and featured performances from well-known singers and entertainers.

Below are 10 takeaways from the meeting.

 

1. Walmart Is Moving in the Right Direction

Walmart Chairman Greg Penner commented that the company is moving in the right direction, following 11 consecutive quarters of positive comps and strong performance at Sam’s Club and in e-commerce, which recorded 60% growth year over year. Penner said that customer feedback is improving (he jokingly noted an encouraging e-mail from his mom), and he characterized Walmart as being well positioned to withstand the tectonic changes happening in retail. The company stands to benefit from the $2.7 billion it invested in raising wages and in training as well as from the acquisition of Jet.com, which has enabled Walmart to expand its online marketplace offering to 50 million items. Throughout its history, Walmart has confounded skeptics by “swimming upstream,” which is one of founder Sam Walton’s 10 rules for building a successful business.

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2. Walmart’s Financial Framework Calls for Growth and Wise Spending

Walmart CFO Brett Biggs reiterated the goals that management shared with investors less than a year ago regarding Walmart’s new financial framework, which consists of strong, efficient growth, operating discipline and strategic capital allocation. These goals essentially boil down to two main points: grow comps and spend money more wisely. Although sales growth has been impressive—including 63% e-commerce revenue growth in the past quarter—Biggs produced a graph showing that SG&A expense has increased as a percentage of revenues over the past three years. He noted that a 1% reduction in annual expenses would mean an extra $1 billion that the company could pass on to customers in the form of lower prices or invest in technology, e-commerce or employees. To conclude his remarks, Biggs urged Walmart’s employees in attendance to work with him to spend money more wisely.

 

3. Walmart Is Implementing New Delivery Methods Such as Click and Collect

Management lauded the introduction of online grocery pickup (click-and-collect) in the US and said that shoppers can receive their items in 60 seconds with automated pickup. The company has been providing grocery delivery for 19 years in the UK and for 16 years in Japan, and now offers pickup and delivery options in eight of its 11 markets. Selected customers in Mexico and Canada can receive fresh produce delivered to their door in one hour, and New Dada, the company’s delivery partner in China, has 3 million drivers. Customers can use the new Walmart app to shop the more than 50 million SKUs on Walmart.com and check store inventory. Pharmacy customers will soon be able to use Express Lanes. Moreover, with Scan & Go, Walmart and Sam’s Club customers can scan products in their shopping cart with either their smartphone or a handheld scanner to save time when checking out. Walmart Pay, which was launched in just 18 months by a 180-person team, was also lauded as a time saver.

 

4. The New Delivery Initiatives Save Customers Money and Time

Marc Lore, former CEO of Jet.com and now President and CEO of Walmart eCommerce US, explained Jet’s smart basket technology. He said that the technology helps customers save money by bundling items for shipment, thereby reducing shipping costs, with the savings passed on to the customer. He mentioned that the company recently introduced free two-day shipping with no membership fee. Lore also mentioned that shipping over the last mile represents the most expensive part of shipping, and that Walmart’s unique advantage was its ability to offer same-day shipping, since 90% of all Americans live within 10 miles of a Walmart store. The company has recently been testing a program whereby Walmart employees can drop off packages to customers on their route home.

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5. Walmart Is Inventing the Future of Shopping, Again

CEO McMillon commented that Walmart is seeking to use technology to empower its associates and save its customers time. He cited examples that included a handheld device that aids shelving accuracy, the use of machine learning to improve the stocking of seasonal items to adapt to weather and the use of the Internet of Things to monitor real-time inventory and price changes. The company is using additional technologies such as digital endless-aisle shopping, automation and image analytics in an effort to “invent the future of shopping, again.”

 

6. Walmart’s Culture Is Incorporating More Risk Taking

McMillon offered some additional remarks for the analysts in attendance, including his view that Walmart enjoys a unique, winning combination of e-commerce and physical stores, which should offer a faster and better customer experience. He added that Walmart is working on its culture in terms of increasing creativity, risk taking, innovation and speed. Whereas the company once comprised specialists working in silos, it now has a team working to solve customer problems and remove friction.

 

7. Walmart Is Working to Improve Price Gaps on Private Label

Management commented that it has made good progress on the private label front, both as part of previously announced programs to reduce prices and future, unspecified programs. Private label will remain an important part of the physical and digital product mix in the future. While metrics such as complaints per million have improved, Walmart is about one-third of the way on its private label journey. At UK-based Asda, private label items account for about 47% of sales. The Jet Fresh food delivery service is currently in a test-and-learn phase, with net promoter scores in the 80% range.

 

8. Private Label Can Leverage Sourcing to Offer Unique Products

Not every product is going to be available on the Internet, and Walmart puts a great deal of time and energy into working with product developers to create unique products. Walmart goes into factories to identify unique products and leverages its human merchandising capabilities to offer the right products, which should offer better margins than third-party goods.

 

9. Strong Fiscal 1Q18 Results Were the Result of Two Years of Investment

First-quarter results benefited from wage investments instituted two years ago as well as from lower inventory, better management of markdowns and lower expenses (due to lower inventory). These factors gave the company the opportunity to “step on the gas” in e-commerce in the quarter. In addition, Walmart was able to mirror SKUs between Walmart.com and Jet.com, and to expand its marketplace to 50 million items from 10 million previously. Management also commented that it was committed to growing gross margin dollars and not necessarily gross margin percentage. Moreover, there are several opportunities to reduce SG&A expense as a percentage of revenue.

 

10. Walmart Has Many Other Levers to Improve Performance

Management commented that there are many levers for improving performance, such as managing global services, payables and receivables across segments and geographies. In many cases, the company will have to rethink its processes and what technology it employs, which could result in improved savings in the longer term. For example, the company could run Walmart academies from existing stores due to the floor space freed up by e-commerce. Regarding offering more items online, management said that the company already offers 1 million items, which represent two-thirds of all items sold online.