Walmart Earnings: Strong Growth in High-Income Consumers Should Worry Amazon
Everyone wants to save money, and everyone wants to save time. Walmart is currently delivering growth, 75% of which is coming from high-income consumers making > $100k. This is not a new trend.
Why the Growth in Higher Income Consumers ?
* Broader assortment via Marketplace, Pickup and Delivery Convenience, Save Money
* In the battle between price and convenience, Walmart chooses "both"
A few stats are in order:
* US eCommerce sales growth 22% (globally 27%) [Amazon more like 7%]
* US Walmart Connect Ads up 26%, globally up 28% [Amazon up 19%]
* Overall sales grew 6%, Profit up ~10%
* Membership income up 22%
* 18% of the business is now eCommerce. (300bps up from last year)
Why the growth in operating income?
* Membership fees and advertising income drove more than half of the operating income improvement and about one-third of all Walmart operating income
Marketplace:
* Grew 42%, > 30% growth the last 5 quarters
* SKU count approaching 700M items
* Sales in beauty, toys, hardlines, and home grew > 20%
Supply chain:
* Store-fulfilled delivery up 50%, improving density as well
* 50% of fulfillment center volume now automated
* 40% reduction in cost per order
Synopsis:
* There's that phrase again - operating income growing faster than sales.
* Amazon is being attacked at the top by Walmart, and at the bottom by Temu. But both attacks are somewhat coming at the high-income consumer (everyone wants to save money). Temu is coming for the time-insensitive items, and Walmart is coming for the time-sensitive items.
* The consumer is "resilient" but still, there is low single-digit deflation in general merchandise on higher unit volumes. This kind of environment plays to WalMart's strengths and is forcing Amazon to adapt and improve its playbook.
* Economy has neither accelerated nor decelerated - it is steady.
* While Amazon is focused on parrying Temu, Walmart could drink its milkshake. The numbers above certainly give it more room to run.
But the biggest reason for Amazon to fear Walmart?
* The growth of Walmart+. The playbook is working, the selection is growing, and the pickup and delivery options are unparalleled.
The two titans are duking it out.
