Walmart leverages operations to offset pressure on margins from keeping prices low as inflation rises

Yesterday at the Stephens Investment Conference, Walmart CFO Brett Biggs told financial analysts he “very good”On the retailer’s investments in order fulfillment, automation and technology, as they generate efficiencies.

Leveraging these operational advantages allows the retailer to play offense and defense simultaneously by winning consumers over with lower prices at a time when the money isn’t going that far, and offsetting – rather than just absorbing – higher costs due to inflation.

“The investments that we make – and it will be, you know, in execution, it will be in automation, it will be in technology – I feel really good about the returns on those. And we wouldn’t invest if we didn’t think our returns could increase ”,Biggs said.

Among the investments Biggs called impacts are those in technology that provide back-of-the-store solutions. For example, standardization efforts at distribution centers, such as stacking pallets to optimize flows when they are unstacked at the back of the store.

Likewise, he said, “We’re at the forefront of what’s going on in the supply chain – whether it’s palletizing, moving goods back and forth, or facilitating delivery – all of those things.”

He added that these investments contribute to Walmart’s longer-term algorithm, allowing the retailer to grow operating revenue faster than mid- to long-term sales and in a way that will enable the company to spend more money on capital expenditures.

Walmart said in its third-quarter earnings call that it had cut its capital spending slightly, raising its forecast from $ 14 billion this year to $ 13 billion.

Biggs characterized this as “Not a dramatic difference”,and noted that while Walmart is not investing as much in new facilities, it is strengthening its ability to execute – a move that should help it sustain the market share gains it is seizing during the longer term. current inflationary cycle.

During the company’s third-quarter call, management explained that unlike competing retailers who pass inflation on to consumers through higher prices, Walmart prefers to keep its prices stable, which makes it more attractive to consumers. increasingly price sensitive buyers.

“We’ve been fighting inflation since Sam Walton. And I think there are times, like this, where you can show the difference you can make for customers. Customers are very price conscious right now – whether at the pump or in the store – and we know they are aware of it ”,Biggs said.

He added that by keeping prices low, Walmart’s price differentials are wider today than they were during the pandemic, making it more competitive. It also gives the retailer leeway to be “thoughtful” about pricing in the future.

Walmart keeps food central while diversifying

Walmart also hopes to maintain its market share gains during this period by further diversifying the services it offers to consumers, such as improved health care and financial planning and management services.

Biggs acknowledged that some of these extensions are difficult and require Walmart to bring in experts in the space to be successful. But, he added, they are “worth it”Because they allow the company to become more involved in the lives of consumers – by retaining existing consumers and creating additional entry points for new Walmart customers.

Even as the retailer expands its reach into new areas, Biggs pointed out that Walmart’s shift to food years ago remains “The biggest strategic decision of all time”.He explained that the food trade is “phenomenal,”and helped transform Walmart to be more relevant and improved its ability to thrive in the future.