No matter which way inflation goes in 2024, Walmart is feeling prepared to handle shifting consumer spending as a response to changing food prices, the retailer’s CFO, John David Rainey, said Wednesday at the Morgan Stanley Global Consumer and Retail Conference.
Walmart has been surprised at the resiliency of consumers in the face of high prices throughout 2023, Rainey said, adding that people have been tending to buy less general merchandise because they are spending more on food.
“Their dollars aren't going as far but they’ve still continue[d] to spend and each quarter this year has been pretty consistent. ... We saw that same consistency until October,” he said.
But for the last two weeks of October, consumer spending was “off-trend,” a pattern that could be linked to weather, Halloween being on a Tuesday and potentially other factors, Rainey said, noting that consumer behavior returned to being more “on trend” in the first week of November.
As Walmart approaches 2024, Rainey said the retailer hasn’t seen enough changes in consumer spending to dramatically change its merchandising or pricing strategies.
“If times get tougher and there’s probably more pressure on [the] consumer, again, I think our value proposition resonates,” Rainey said. “If we get to a better, healthier economy and we see more growth, I think a lot of the things that we're leaning into ... really resonate with customers as well.”
Because general merchandise generally yields higher gross profits than grocery for Walmart, the retailer wants to see the mix of products it sells shift toward those goods if consumers have more spending power, Rainey said.
For Walmart, general merchandise is deflating today in the 5% to 6% range, getting to a point where prices are lower than two years ago, while food is flat to slightly up, Rainey said. The retailer is focused on selling more units and seeing consumers buy more general merchandise, Rainey said.
Commenting on Walmart executives’ remarks during its most recent earnings call, Rainey clarified that the retailer sees deflation as a possible scenario for 2024 given its overall mix but “it is not our base planning assumption, necessarily.”
If Walmart is faced with a deflationary environment, it expects to see more pressure on units, Rainey said.
Rainey also said that Walmart is confident it can grow profits faster than sales over the next few years: “On a multi-year basis, we think that that's a very achievable outcome.”
To protect itself against adverse economic scenarios in the future, Walmart is investing in automation, robotics and supply chain improvements, which will allow it to expand its amount of merchandise and handle more volume, Rainey said.
“If you've ever been to the back of the store and you see how items are unloaded from a truck, it's a very manual, cumbersome process,” Rainey said. “And by automating the pallet storage and even making it where pallets, when they get to the stores can go to a particular aisle to have the merchandise unloaded, there's a huge savings.”
Automation is also helping Walmart’s efforts to boost e-commerce. Walmart’s U.S. online sales were up 24% in the third quarter, fueled by strength in pickup and delivery and a 26% increase in the retailer’s Walmart Connect ads business.
Rainey also said Walmart is leaning into “convenience” as a major value proposition in the digital space, alongside price and value.
“If you look at other companies that saw a lot of their e-commerce trends during the pandemic, they accelerated, right? But a lot of those reverted back to pre-pandemic trends afterwards. Not Walmart,” Rainey said.
As Walmart works toward e-commerce profitability without subsidization from the revenue of higher-margin business units, the retailer is relying on its extensive store fleet in the U.S. to help lower the costs of e-commerce operations, Rainey said.
“The most expensive part of delivery is the last mile and that's where our physical footprint of 4,700 stores in the United States that are within 10 miles of 90% of America give[s] us an enormous advantage,” he said.
