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Walmart doubles down on digital for future growth
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Walmart's Q2 2016 earnings revealed positive growth in the company's total U.S. sales.
This growth was driven largely by its e-commerce business and investment in digital tools. The company's international revenue declined year-over-year (YoY) during Q2, but we expect better comparisons going forward, due to enhancements being made to Walmart's e-commerce sites and a key partnership with China-based e-tailer JD.com.
As a whole, Walmart's business continues to thrive:
Total revenue reached nearly $121 billion during Q2 2016, marking 0.5% YoY growth.
Revenue from Walmart US alone totaled over $76 billion, growing 3% YoY.
However, Walmart International revenue fell over 6% YoY, totaling $28 billion.
The company's results were strongest in e-commerce:
Global online sales on Walmart's e-commerce sites grew nearly 12% YoY.
Walmart's online gross merchandise volume (GMV) grew 13% YoY.
Walmart's strong digital performance was driven by a few key developments during Q2. Walmart focused on its grocery e-commerce business last quarter, with efforts aimed at building digital relationships with customers, scaling the assortment, and expanding online grocery, CEO Doug McMillan pointed out during the earnings call. Walmart also expanded its grocery click and collect service to 30 new markets. The pickup service is now available in 60 US markets at nearly 400 locations.
In addition to grocery, Walmart's third-party marketplace continues to grow. Since the beginning of the year, the company has added nearly 7 million new items available for purchase to its marketplace. Walmart's third-party marketplace is vital to expanding its product offerings as it competes against major players like Amazon and eBay.
Walmart's acquisition of Jet.com will help propel the company's digital growth even further. In the biggest e-commerce acquisition yet, Walmart acquired the two-year-old startup for $3 billion. Walmart will leverage Jet.com's existing business to help grow its online sales and customer base. Specifically, the company is focusing on customer engagement through Jet.com's technology that gives customers savings in real time based on the items in their shopping cart. This encourages shoppers to purchase multiple items at once rather than one at a time.
"When customers build a basket of goods online rather than ordering one item at a time, shipping economics are in their favor and ours," noted McMillan. This will help steer customers toward larger purchases, while helping Walmart cut back on shipping costs associated with a higher volume of individual orders.
A key partnership with JD.com will also help Walmart's e-commerce business, as well as its international performance. Walmart and Sam's Club will both be listed on JD.com as preferred retailers with items available for purchase through the China-based e-commerce site. This will help expand Walmart's presence in China significantly and could help grow its international revenue down the line.
The partnership could also help drive shoppers to Walmart's physical store locations in China. CFO Brett Biggs specifically noted that this partnership will "better serve consumers through a powerful combination of e-commerce and retail." Leveraging JD.com's 188 million customers in China will likely raise visibility for Walmart as a go-to retailer in the country.
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