Walmart, a 62-year-old retailer, looks sharper than it has in a long time. How long can it keep the spark going?
After years of lagging behind the retail stars Costco Wholesale and Amazon.com, Walmart is catching up quickly. Its shares rose 72% in 2024, and are up another 16% so far this year. Walmart has become an e-commerce heavyweight, and it is gaining share with both low- and high-income shoppers.
For some time, America’s largest retailer — for better or worse — was best known for its corporate motto: Every Day Low Prices. Target and Costco were the places where higher-earning consumers went for exciting products and a fun store experience, while Amazon was light years ahead on e-commerce. Over the past few years, though, Walmart has started encroaching on those competitors’ territory.
To begin with, more of the well-to-do are shopping at Walmart. In February, 89% of households surveyed by Morning Consult earning at least $100,000 said they shopped at the retailer, up from 77% five years earlier. The share of low- and middle-income consumers who shop at Walmart has also grown over the period, according to the survey. Its favorability rating among high-income consumers has improved. About 36% of high-income respondents surveyed by Morning Consult this year said they had a “very favorable” impression of Walmart, up from 27% in 2019.
Meanwhile, Walmart’s e-commerce revenue — including Sam’s Club and its international segment — hit $100 billion in the fiscal year ended in January 2024. Walmart’s total e-commerce business is now about a fifth of the size of Amazon’s, compared with about 10% in 2017. Its paid membership reach is getting harder to ignore. The data firm Numerator estimates that about 12% of U.S. consumers have a Walmart+ membership, compared with Amazon Prime’s 62% share.
Even the merchandising of Walmart looks more on point. Last year the retailer launched a new store brand — Bettergoods — which features gourmet items such as cardamom rose raspberry jam. Several weeks ago Walmart’s knockoff version of the Hermès Birkin bag, the “Wirkin,” went viral on social media and quickly sold out. Walmart has hired some “cutting-edge merchants who have experience procuring the finest items,” said Simeon Gutman, equity analyst at Morgan Stanley.
Behind Walmart’s wins are years of stepped-up investments in both e-commerce and stores. Gutman said Walmart’s investment cycle started about a decade ago, ahead of its retail competitors. It has stepped up capital expenditures more recently. Over the past three fiscal years, Walmart’s U.S. business alone spent a total of more than $42 billion in capex, about 80% more than in the preceding three years. In its fiscal year ended in January 2024, the retailer spent almost as much as what Wall Street analysts estimate Amazon spent on its retail business in 2023, according to Visible Alpha.
These investments have helped Walmart lose less money from e-commerce sales. The retailer said that more than half of its fulfillment-center volume was automated in the latest reported quarter, double what it was a year earlier. That helped reduce U.S. delivery cost per order by about 40%.
At the same time, growth in e-commerce helps Walmart expand its high-margin sources of revenue such as membership income and advertising sales to in-store and online sellers. More online sales give Walmart a treasure trove of valuable online traffic and consumer data that can be monetized. Membership and advertising accounted for nearly a third of the company’s overall operating income in its last reported quarter. As these high-margin streams of revenue grow, some of it can be funneled back into cutting prices.
A skeptic might argue that this growth could be short-lived. After all, the pandemic disruption helped speed up Walmart’s e-commerce growth, just as it did for other retailers, and the inflationary environment following the pandemic probably pushed high-income consumers to try out Walmart for the first time. Walmart drew in higher-income consumers following the 2008-09 financial crisis, but that cohort didn’t stick around once the economy improved, noted Steven Shemesh, equity analyst at RBC Capital Markets.
But Walmart is also a very different business today. The Walmart+ membership looks relatively sticky, with about 90% of members surveyed by Evercore ISI Research last year saying they are definitely or maybe renewing. Merchandising has improved both in-store and online, with the online marketplace now offering nearly 700 million unique items. And stores also look better. “Store remodels have been significant,” Shemesh said. “They have a higher-end feel. Cleaner, better merchandising, better sightlines.”
It also helps that Walmart’s competition looks feeble. Dollar stores, after years of underinvesting in their stores, are scrambling to catch up. Large supermarket chains look weaker too: The merger of two of the largest chains — Kroger and Albertsons — was blocked last year by antitrust enforcers, and another splashy combination in the sector looks unlikely. Target has fallen behind, in part because inflation-pinched consumers haven’t been in the mood to shop for the trendy discretionary items that have become its specialty. Target hasn’t invested as much in e-commerce and is unlikely to be a serious competitor in that domain for some time. Meanwhile, the e-commerce leader, Amazon, still hasn’t cracked physical retail.
Walmart shares trade at about 38 times forward-12-month earnings, around 78% higher than its 10-year average. After historically being closer to traditional peers such as Target and Kroger, its multiple has recently overtaken Amazon’s. At this multiple, Walmart could face pressure to keep growing rapidly and to expand margins more dramatically.
But the retailer appears to be taking a page from Amazon’s strategy in its own growth phase, signaling that it will focus on gaining market share over rushing for profitability. “If investments in delivery speed cause us to reach profitability a little later, that’s fine too. We want to deliver faster,” Walmart Chief Executive Doug McMillon said on the most recent earnings call. “I think we are very confident that we’re going to make money in e-commerce. Whether that happens today, tomorrow or a week from now or a month from now or a quarter from now, I don’t really care.”
Walmart has been around the block enough times that it knows how to play a long game.