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What Walmart Doesn’t Know Should Worry Us All


Walmart Inc. is girding for another rough and uncertain year. As a company that traditionally excels during tough economic environments, that should make you nervous about how consumers might fare this year but not about whether Walmart will thrive. 

The company’s fourth-quarter results, which include the all-important holiday season, exceeded expectations on Tuesday. Its outlook for the year though disappointed, signaling a wariness about the pandemic-recovery economy. In a call with investors, Chief Financial Officer John Rainey said the company is being cautious because “there’s just a lot we don’t know.”“We could tilt into a recession. We don’t know what happens to consumer spending. We don’t know what happens to layoffs, household income,” he said. “We’re so early into the year and there’s a lot of unknowns right now.” 

Most of the uncertainty comes down to how consumers withstand a Federal Reserve tightening cycle that still has a ways to go. A run of strong data for January — from non-farm payrolls to retail sales — has prompted some economists to predict a more aggressive Fed. Goldman Sachs Group Inc., for one, expects another 75 basis points of benchmark interest-rate increases from here with no cuts until 2024. At the same time, the chance of recession in the next 12 months rose sharply in January based on Fed Chair Jerome Powell’s preferred yield-curve indicator, according to my colleagues at Bloomberg Economics. The big question then is; will the Fed’s rate hikes force a consumer recession to tame inflation?

Walmart shoppers are still making purchases but they are “choiceful, discerning, thoughtful” about them, said Chief Executive Officer Doug McMillon. The company saw shoppers roll back purchases on general merchandise for groceries. About half  of its grocery share gains in the fourth quarter stemmed from high-income earners looking for better deals. While grocery sales made up a larger chunk of sales, food inflation took a bite out of its overall margin and bottom line. 

The patterns Walmart is seeing reflect broader consumption as people forgo discretionary spending for essentials, unless it’s travel and eating out — segments that continue to benefit from lockdown and work-from-home fatigue. Retail sales figures last week showed spending on food services and drinking places increased 24% from a year earlier, while spending on groceries grew by 5.8%. With the low-margin grocery business increasingly expected to make up a bigger part of its revenue mix this year, Walmart will have to lean into its other businesses to bolster profits.The company has been wise to use this time to play catch up with Inc. on the technology front to lure in more high-income shoppers. Capital expenditure this year will be flat to slightly up as Walmart continues “to optimize our supply chain and stores,” like expanding pick-up and delivery, or reducing order packing time in its warehouses. In an indirect jab at Amazon adding incremental fees for some grocery and prescription delivery to its Prime membership program, Walmart said its strategy to avoid such fees “is working fantastically.”

It’s also reducing costs across its e-commerce distribution network. Investments in artificial intelligence and automation are now reaching a point where the company can deploy them across its network and see returns on investment in the medium term, it said. Already, these investments are helping with efficiency. For instance, at an e-commerce distribution center, automation reduced a 12-step process to a five.

Walmart’s diverse business model really comes to the fore in turbulent times. Its grocery business picked up when discretionary spending waned. Its advertising network (which grew 30% last year to $2.7 billion) and business-to-business delivery business, GoLocal, should help bring top line growth even as consumer spending slows. Its online marketplace is a “linchpin,” which has helped the company’s global e-commerce business grow to more than $80 billion, McMillon said.  

McMillon described the company as “naturally hedged,” so if customers want more of something and less of something else, it can shift its inventory. Walmart has the market power to do that. It is designed not to have too many eggs in one basket, which will keep it chugging through a tough year even if the company loses some margin on food. Consumers, with a dozen eggs at nearly $5, not so much.More From Bloomberg Opinion:

• Soft, Hard or No Landings? Time to Have Your Say: John Authers

• American Shoppers Just Can’t Pass Up a Bargain: Leticia Miranda

• This CPI Report Will Lead to Bad Fed Decisions: Karl W. Smith

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News.

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