A boost in US holiday sales helped retail behemoth Walmart's profits surge at the end of 2018, but store executives acknowledged on Tuesday (Feb 19) they have not yet solved the profitability riddle for the fast-growing online business.
The world's biggest retailer, which has been investing aggressively to adapt its US stores to the digital era by adding more in-store pickup and delivery of smartphone orders, reported profits of US$3.7 billion in the three months ending Jan 31, up nearly 70 percent from the same period a year earlier.
Total revenues increased a more modest 1.9 per cent to US$138.8 billion, the company said.
Higher comparable sales at Walmart's namesake US stores - the source of two-thirds of revenues - offset declining sales at Walmart International and Sam's Club stores. Executives touted gains in market share over the holiday season in toys and groceries.
The company scored a 43 percent jump in e-commerce sales, its latest increase following acquisitions of smaller digitally-oriented retail companies and revamping its operations with new smartphone application features and customer offerings.
Often seen as a rival to Amazon in the retail big leagues, Walmart now offers grocery pickup at more than 2,100 of its 4,755 US stores and delivery at nearly 800 locations.
But traditional brick-and-mortar retailers have struggled to attain the same level of profitability on digital sales compared with their legacy businesses, in part because customers increasingly demand delivery of goods at no extra charge.
Walmart's approach has been to "be there when where and how" customers want, as Chief Executive Doug McMillon put it in a press release.
That strategy has boosted sales but is not yet profitable. The company has signalled that it expects losses in its e-commerce business to grow over the next year due to spending on same-day grocery delivery and technology.
"It's loud and clear to us that the customer is really busy so if we can find ways to make things more convenient for them with delivery and pickup, they're all over it," said Chief Executive Doug McMillon.
ROAD TO PROFITABILITY?
McMillon said the company's grocery services had expanded its customer base but that the biggest challenge was to improve the "merchandise assortment" of the digital orders with more high-margin products in addition to staples that have tight profit margins.
Having already introduced automated delivery towers at stores, Walmart is exploring other innovations, such as a crowdsourced grocery delivery pilot programme.
McMillon said the system could ultimately evolve to one where Walmart delivers groceries within a window of time, an approach that would probably be more sustainably profitable than guaranteed one-hour delivery.
Neil Saunders of GlobalData Retail praised Walmart's performance during the critical holiday season, saying the company's efforts to boost online shopping and shipping scored with consumers.
"Walmart is successfully broadening its online base of customers and is now attracting both younger and more affluent demographics," Saunders said.
"These are early days but as we have noted before, Walmart is now a serious contender in the online space and presents a much more serious threat to Amazon than it did 18 months ago."
Walmart's results translated to earnings per share of US$1.41, above the US$1.33 expected by analysts. Revenues also topped estimates.
Shares finished the day with a gain of 2.2 percent at US$102.20.
