- Walmart's stock has suffered a 30% decline this year, amidst a strong dollar and economic problems in China.
- In order to invest for the future Walmart has increased wages and invested in ecommerce.
- The retail giant gears up for Christmas by offering more discounts. Hopefully, this increases sales significantly.
Earlier this year, Walmart (NYSE:WMT) took the decision to invest in its employees (wage increase) and in its ecommerce strategy. In fact, Walmart expects to invest more than a billion dollars into ecommerce in 2016. Arguably, this is due to the fact that they saw what Amazon (NASDAQ:AMZN) has been able to achieve with its ecommerce platform.
Notably, Amazon has the enviable status of the world's largest online retailer- not bad for a company that started off as a bookstore at $1.73 a share. With the mastery over the ecommerce, customer acquisition and retention, digital marketing, and diversification, Amazon's stock now sits at $679.74 a share.
As is usually the case with large companies, they failed to predict the change in consumer shopping behavior. The conditions of more widespread internet access, the convenience of shopping from home or mobile, and increasingly faster deliveries, has allowed Amazon to flourish. As a result, Walmart is having to play catch up in the ecommerce arena.
Despite the fact that Walmart's stock has suffered a turbulent year, there are certain metrics that should cause potential investors to take a second look.
1) Walmart's return on equity is impressive at 18.2%. Therefore, the stock's performance this year doesn't show their true potential.
2) Some of Walmart's troubles were caused by issues beyond their control. For instance, the storm of a strong dollar and economic turmoil in China had a negative effect on Walmart's earnings.
3) Walmart's economies of scale is unmatched, and once they roll out their ecommerce platform globally, there is a possibility of being able to go toe-to-toe with Amazon.
After taking a beating immediately after their Q2 earnings report in July, Walmart came back strongly with its Q3 earnings report. Notably, the retailer recorded a fifth consecutive increase in sales in the United States. Additionally, traffic in stores increased by 1.7%.
However, Walmart's earnings report wasn't all roses and rainbows: net profit was down by $407 million from the same period last year. However, this can be attributed to their recent investments and wage increases.
In order to record a strong performance during the busy Christmas shopping season, Walmart has opted to begin Cyber Monday on Sunday at 8pm and offer 4 times the number of discounts (2000) as compared to last year (500). This should drastically increase the traffic into their stores, and should be a great opportunity to get consumers used to shopping on their ecommerce platform.
In conclusion, Walmart will had to raise employee wages at some point. They were coming under increasing pressure, and all the negativity threatened a widespread boycott of their business. Moreover, with the National Retail Federation expecting online sales to increase by close to 10%, Walmart has to hit the ecommerce rod while its hot or risk getting left far behind.
I am going to put my neck on the line and state that Walmart won't catch up with Amazon in the next 10 years. This is simply because Amazon is too far ahead, and continues to innovate in order to increase their foothold. However, Walmart will be able to slice itself a sizeable piece of the pie.
Investors and analysts will pay a keen attention to Walmart's Q4 results. This is due to the fact that it provides an indication as to the retail giant's progress after such significant investment.