My thoughts on Walmart Plus

On Tuesday, Walmart unveiled its a long anticipated membership program called Walmart+. For $99/year, members can have unlimited free qualified deliveries from stores, fuel discounts at Walmart & Murphy stations as well as shopping tools such as scan & go to avoid long lines. To qualify for free shipping, deliveries must be $35 or more. Walmart said that there were more than 160,000 items available for this program, ranging from groceries, toys, household essentials to technology. Additionally, members can get 5 cents per gallon off at Walmart and Murphy gas stations. The company said that customers would be able to subscribe for this program starting 15th September 2020 with a 15-day trial.

How competitive is it?

Compared to Amazon Prime, Walmart Plus is years behind. First of all, at $119 a year, Amazon Prime includes many more additional benefits such as exclusive discounts, unlimited deliveries of qualified items without minimum purchase requirement, media & entertainment perks, just to name a few. Among the biggest benefits that Prime offers is the ability to get unlimited two-day delivery for low value items. I can’t count how many times I order stuff less than $15 individually. Second, Amazon carries a lot more items for Amazon Prime than Walmart. Third, when it comes to online shopping, it is a much more established name than its Arkansas-based rival. Shoppers trust Amazon and that’s a true competitive advantage.

What works for Walmart Plus in comparison to Amazon Prime, I believe, is that it offers less expensive groceries. My experience with shopping groceries on Prime is frustrating. I was confused about groceries on Amazon itself and then Whole Foods. Plus, they are not as cheap as groceries sold by Walmart. Hence, if customers are geared more towards grocery shopping, I think Walmart Plus can make a play there.

Other grocers or retailers follow almost the same playbook. Deliveries have to meet a certain threshold to be free and if retailers don’t handle delivery themselves, they’ll partner with Instacart. In that case, customers either pay a small fee for each delivery or enroll in a membership with Instacart (in either case, you are expected to tip drivers). Each retailer will appeal to shoppers in a different way. Take Aldi for example. Its unique selling point is inexpensive fresh groceries. Look for cheap grapes and great Greek yogurt? Head to Aldi. The downside is that Aldi carries few SKUs and less flexibility for shoppers. Target offers much more flexibility and choice as it carries more items, but its groceries are significantly more expensive than those at Aldi or Walmart, in my experience. Costco seems to match Walmart on the grocery front. A Costco member (at least $60/year) can have free grocery delivery for orders of $35+. Groceries at Costco are competitive in prices, compared to those sold at Walmart. Other items can have free delivery too, and with no minimum order requirement, but it will take at least two days.

Figure 1 – Delivery options at Costco. Source: Costco

There are other important players in this space such as Instacart and Shipt. Instacart Express or Ship membership is almost identical to Walmart Plus. Both cap membership fees at $99/year and a qualified basket has to be $35 or more. Unlike Walmart, Instacart is more focused, almost exclusively, on grocery delivery. Shipt is similar to Instacart and owned by Target, but also delivers for other brands as well. An advantage that Shipt or Instacart has is their network of partners. Walmart Plus works only for items sold by Walmart. With Shipt or Instacart; however, shoppers can order from different stores that sell different private brands. It offers shoppers more choices and flexibility. This is the list of retailers partnering with Instacart at where I live. I am sure in bigger cities, the list will be much longer

Figure 2 – Retailers that partner with Instacart in Omaha. Source: Instacart

It’s worth pointing out that even though you can order from multiple stores within Instacart, each store has its own check-out and minimum purchase requirement. The value for customers here is that they won’t have to create an account or download multiple apps on their phone. Within Instacart, they can place orders from different apps. What works for Walmart against the likes of Instacart is that Walmart offers non-grocery items for deliveries as well. Walmart Plus also offers fuel discounts, something that isn’t possible with Instacart.

This is how I think about the positioning of a few retailers who either have their own delivery programs such as Walmart or Amazon, or have their delivery powered by Instacart/Shipt

Figure 3 – 2×2 positioning metric

Among the ones I picked to analyze, Costco is the most similar to Walmart in terms of positioning. Their assortments and offering of inexpensive groceries are pretty similar. While Costco membership, the lowest level at $60/year, is cheaper than Walmart Plus, the fuel discounts and in-store shopping tools from Walmart make the comparison interesting. As far as I am concerned, Murphy and Costco stations are pretty similar in gas prices. Throwing in another 5 cent discount can be attractive to shoppers who drive a lot. Plus, in-store shopping perks like Scan & Go and pay with Walmart Pay can offer extra flexibility. Sometimes, we just need one or two quick items that wouldn’t qualify for a free shipping and we don’t mind stopping at a store for a few minutes. These shopping perks can make life a little bit easier for shoppers to get in and out of a store quickly.

What’s next?

It’s both interesting and challenging to look at this space as there are so many ways to slice and dice. For instance, Walmart Plus enables Walmart to keep their faithful customers from joining the likes of Instacart. If somebody tends to shop more at Walmart for groceries, they now have more reasons to stick to the brand. If some people usually shop at Costco, both Costco and Walmart have its appeal and the decision will rest with each shopper. For those who like to shop non-grocery items a lot and prefer the convenience, I don’t think Walmart Plus stands a chance against Prime yet. If some shoppers prefer the flexibility of ordering from multiple stores within one app, Instacart is the way to go.

Walmart Plus has tailwinds behind it. First, various stores across the country will power their delivery and be a huge competitive advantage. Few retailers can rival Walmart in this sense. Second, the ongoing pandemic and the explosion of grocery eCommerce are significant positive trends for Walmart. Moving forward, Walmart will likely continue to add more benefits to its membership program. The most obvious play is to expand the selection, pushing Walmart’s position in Figure 3 to the right. The more items are available for delivery, the more attractive Walmart Plus will be. Another idea is to mirror what Amazon did with Prime by throwing in other perks such as books, music, movies, etc…I suspect Walmart won’t increase Walmart Plus membership fees in the next two years at least. It took Amazon almost ten years to increase Prime’s fees from $79 to $99/year and another four years to $119.

The future isn’t without challenges for Walmart Plus. There is really subscription fatigue among consumers. How many consumers are willing to spend money on entertainment subscriptions (Netflix, Spotify, Disney Plus…), Amazon Prime or Instacart or Costco membership and then Walmart Plus. The economic uncertainty may be a factor as well. Folks may try to tighten their budget more and not have enough disposable income for another subscription. Plus, as Walmart moves to make its membership program more attractive, others don’t stand still. Instacart will continuously expand its partnership network. Amazon will definitely work to move more into grocery delivery.

This grocery chain is considered “good and fierce” by Walmart

“They are fierce and they are good.” – The then-President and CEO of Walmart US, Greg Foran, said this about Aldi, a hard discounter hailing from Germany.

A little bit of history. The original Aldi was founded in 1946 by Karl and Theo Albrecht in Essen, Germany. The name Aldi combines the first two characters of their last name (“Al”) and the first two characters of the word Discount (“Di”). The company was split about 2 decades later into Aldi Nord and Aldi Sud when the founding brothers disagreed over the sale of cigarettes in their stores. Aldi Sud made inroads into the US grocery market first in 1976, keeping the brand name. Aldi Nord followed through the acquisition of Trader Joe’s. Although Aldi isn’t a household name like Costco, Walmart or Target in the US, the chain has been in the US, actually, for quite some time with the first store opened in Iowa in 1976.

How has Aldi been doing in the US?

By the latest estimate, Aldi has about 2,000 stores in the US. In 2017, the chain announced a $5.3 billion expansion plan that is focused on remodeling existing stores and opening new ones. Aldi expects to have 2,500 stores in the US by 2022, making it the 3rd largest grocery chain only behind Kroger and Walmart.

Figure 1 – Source: Red Lion Data
Figure 2 – Source: CNN

Aldi was reported to have a tad over 2% of market share in the US grocery segment in 2018. Morgan Stanley estimated that in 2019, Aldi’s YoY growth surpassed that of Kroger, Target, Whole Foods, Publix and only trailed behind that of Walmart. Supermarket News said that the German-native discounter recorded about $18.4 billion in revenue in 2018, up from $16.8 a year prior. Since the company is privately held and does not have to report its financial data, these figures cannot be confirmed for 100% accuracy. In an interview in 2018, the CEO of Aldi revealed that the company’s US sales doubled in the previous 5 years leading to 2018 and added that “our same-store sales over the past several years has been much more than the industry has realized.”

In the same interview, the CEO, Jason Hart, said that in 2017, 40 million households shopped at their stores every month with 7 new million households added to the customer base. Aldi expects the figure to grow to 100 million customers every month by the end of 2022.

Apparently, shoppers love Aldi. According to the study by Bain & Company in 2018, a known consulting firm, Aldi leads all discounters in Net Promoter Score, which is a metric for customer advocacy, and is a top 3 in the grocery segment overall. A high Net Promoter Score is important as promoters are much more loyal and spend more. Per Bain, “promoters in general spend much more—$111 vs. $39 on average per month—and give retailers a higher “share of wallet”—28% for promoters vs. 11% for detractors”. A study by Morgan Stanley revealed that in 2018, 19% of shoppers who switched retailers began shopping at Aldi, second only to Walmart. Walmart got 30% of switchers, but the figure was flat from a year prior while Aldi’s number increased.

Figure 3 – Source: Bain & Company
Figure 4 – Source: Bain & Company

Given what we have seen so far, Aldi has done quite well for themselves in the cut-throat grocery market. What is their secret sauce?

What makes Aldi competitive?

Aldi is known for its thrifty culture and approach. The company works aggressively in cutting costs and passing on savings to shoppers as much as possible. On average, an Aldi store’s size is about 12,000 square feet, compared to Walmart’s 178,000 and Costco’s 145,000 square feet. The smaller size helps drive down either leasing expense (if the land is leased) or depreciation (if the land is owned), as well as energy costs. Regarding SKUs, an Aldi store, on average, carries 1,400 items compared to 40,000 items by a traditional supermarket. The much smaller store size and more limited item selection lead to fewer staff required. An Aldi store usually has only 3-5 employees, a significantly smaller number compared to how many employees are present at a store like Walmart or Costco. The limited item selection enables Aldi to focus on its offerings and negotiate favorable deals with suppliers to keep costs and prices low. Another benefit is that a limited assortment doesn’t require complex marketing promotions, meaning that there will be no cost on marketing materials and labor.

The way Aldi operates its stores also contributes to cost savings and lower prices. Walking into an Aldi store, you won’t notice many decorations. It looks like an ordinary, no-fancy store and it’s by design to keep costs low. At Aldi stores, there is no free bag. Customers are encouraged to bring their own bags. Carts can only be used with a quarter coin. Customers retrieve the quarter upon returning a cart. This policy has long been part of Aldi’s signature operations. Additionally, customers have to bag their own groceries. A cashier will scan items and put them in a cart, but shoppers will have to take it from there. It speeds up the checkout process, increases efficiency and reduces the need for additional staff. As far as I know, there is no self-checkout.

The book Retail Disruptors mentioned the thrifty approach codified into what is known as Aldi’s “Doing Without Checklist”. The checklist consists of rules such as “no external market research, no customer surveys, no budget forecasts, no public appearances, no publicity, no PR departments, no sumptuous business offices, no company cars, no gifts accepted or invitations for dinners from vendors.” If you are not familiar with Aldi, perhaps this may be the reason why.

For example, each product has a bar code on each side of its package so cashiers can scan items quickly. The company recently took two years to develop a new milk bottle and transporting system that swapped out metal for polystyrene crates, allowing it to get more milk on a single truck because it weighs less, which saves on transport costs.

Source: Inquirer

About 90% of Aldi’s items are private labels. This private label centric approach allows Aldi total control over its selection and reduces the cost as well as complexity that comes with national brands. Private labels used to be unpopular among shoppers due to their cheap image. However, consumer preferences have changed. Astute shoppers, especially millennials, now have a much more favorable view on private labels because they are cheap and provide best value for money. According to Bain, 85% of American shoppers are open to buying private labels.

All together, Aldi’s culture and operational philosophy lead to lower prices and value for money for shoppers, especially in fresh groceries and staples. I switched to Aldi from Walmart a few months ago. My shopping habit is pretty consistent as I only need a few vegetables, some nuts milk and fruits, all of which can be found for a cheap price at Aldi. For instance, I have bought a lot of fresh grapes for 79 cents per pound for the past 4 weeks, a price much lower that what other grocers can offer. A bottle of soy or almond milk costs only around $2.4 at Aldi.

Figure 5 – Source: CNN

Of course, Aldi isn’t for everyone. There are a lot of things unavailable at Aldi and so are other convenient add-ons. If you want to buy a TV or an appliance or want a self-checkout, chances are that you won’t find either at Aldi. However, if you only want to buy fresh produces and staple food consistently at cheap prices without having to deal with complexity that comes with various choices, then Aldi is for you. Also, not many people enjoy spending a lot of time at a store. Personally, I can go in and out of an Aldi in about 5 minutes, if in-store traffic is light. I know what I want to buy and the store’s 5-aisle layout makes it super easy to navigate. In fact, Aldi seems to resonate well with high earners. Aldi’s new stores are in zip codes that have more than $65,800 household income on average, about $4,500 above the national average.

Figure 6 – Source: Bain & Company

Grocers in the US certainly noticed the German brand’s presence. Since 2017, Walmart has closed the price gap to Aldi. Retailers also invested heavily in eCommerce and delivery options such as pickup or to-door delivery. Aldi responded by:

  • Increasing its fresh food offerings by 40% in 2018 and adding new vegan and vegetarian options
  • Launching a nationwide marketing campaign, something that is unusual for the discounter
  • Introducing a partnership with Instacart for pickup and delivery

The company has performed well so far in the US. It’s expanding and has its own legion of fans, including myself. However, that’s not a guarantee for future success. The grocery market is notoriously low-margin and littered with aggressive competitors who have vast resources at their disposal. Also, changing customer preferences can go against Aldi. Case in point: Covid-19 has driven consumers to shop online more, even for groceries. If Aldi is forced to steer away from its bare-bone approach, it will eat away the discounter margin, but Aldi may not have a choice. There are several ways that Aldi can unlock growth that I can think of:

  • Expanding geographically to new market, especially into West Coast
  • Adding more convenient services
  • Expanding its item selection. Since it doesn’t carry too many items, there is a lot of opportunity here
  • Going after more affluent customers who value what Aldi has to offer

I am excited to see what the future holds for Aldi. I don’t know how it will go for the discounter. Given my personal experience as a shopper and the company’s performance after being in the US since 1976, I think it earns a bit of our confidence.

Weekly readings – 20th June 2020

What I wrote

I wrote about the new partnership between Walmart and Shopify

Arguably the hottest topic in tech this week is the saga between Apple and Hey

I also talked a bit about Verisign, a company that makes most of the Internet work properly

If you are interested in Quick-Service-Restaurant franchise, I wrote about operating margin that can be expected by a franchisee

A couple of quick tutorials on SQL and rolling average in Power BI

Business

If You Want Hertz, Have Some Hertz

How Robinhood Convinced Millennials to Trade Their Way Through a Pandemic. Robinhood now has 10+ million users and has become a phenomenon lately

The Observer Effect’s interview with Marc Andreessen

Stemming from the interview above, I found Marc’s previous post on productivity hack

A great post on Structured Procrastination

Structured procrastination means shaping the structure of the tasks one has to do in a way that exploits this fact. The list of tasks one has in mind will be ordered by importance. Tasks that seem most urgent and important are on top. But there are also worthwhile tasks to perform lower down on the list. Doing these tasks becomes a way of not doing the things higher up on the list. With this sort of appropriate task structure, the procrastinator becomes a useful citizen. Indeed, the procrastinator can even acquire, as I have, a reputation for getting a lot done.

Source: Structured Procrastination

The Risk of Outsourced Thinking

Google and HTTP

The Case for ARM-Based Macs

Amazon asks court to block former AWS marketing VP from working on Google Cloud Next speeches

How Large Is the Apple App Store Ecosystem?

Other stuff

The Death of Engagement. A good read on America’s foreign policy with China over the last administrations

A collection of free books from Springer

In Japan and France, Riding Transit Looks Surprisingly Safe

Architects have designed a Martian city for the desert outside Dubai

Walmart and Shopify

A few days ago, Walmart and Shopify announced a strategic partnership that would allow Shopify merchants to list products on Walmart website and still manage their stores through the Canadian company’s system. Below is what Walmart said in their press release

The U.S. eCommerce business grew 74% in total last quarter, and growth in marketplace outpaced the overall business even as first-party sales were strong. As we launch this integration with Shopify, we are focused on U.S.-based small and medium businesses whose assortment complements ours and have a track record of exceeding customers’ expectations.

We’re excited to be able offer customers an expanded assortment while also giving small businesses access to the surging traffic on Walmart.com. Shopify powers a dynamic portfolio of third-party sellers who are interested in growing their business through new, trusted channels. This integration will allow approved Shopify sellers to seamlessly list their items on Walmart.com, which gives Walmart customers access to a broader assortment.

Growing our Marketplace is a strategic priority, and we are going to be smart as we grow. We will start integrating new sellers now and expect to add 1,200 Shopify sellers this year. Shopify has a long history of helping small businesses leverage scale, and we’re proud to be part of the solution that is helping customers and other retailers.

Source: Walmart

What does Shopify do? Why may it benefit from Walmart?

While Walmart is a household name in the US, Shopify is much less known as its business is typically behind-the-scenes. Shopify offers solutions that help individuals and businesses launch their online presence. Shopify services range from apps that build an actual online store, payments, marketing, fulfillment, shipping and order management. Essentially, Shopify can give you all back-end services you need to start an online business tomorrow. Shopify customers pay a monthly subscription to have access to its offerings and extra fees whenever the customers want to use additional services.

Although the company didn’t make money from its operations as of 2019 yet, its revenue doubled compared to 2018.

Source: Shopify

Investors seem to have confidence in the outlook of the company, especially when e-Commerce gained traction amid the Covid-19 crisis. For the past year, Shopify stock has grown by almost 185% from $300 to $869 as of this writing. Despite Shopify’s growth, it is still a long way to go to unseat Amazon as the king of eCommerce in the US. According to eMarketer, Shopify had only 5.9% market share compared to Amazon’s 37%.

Source: Shopify

Shopify’s business model puts it in a direct collision course with Amazon’s own 3rd party marketplace. Individuals and small businesses can list their products on both Amazon and Shopify. Although it’s unclear which option is more financially beneficial to merchants, one thing is clear: Amazon has a lot more traffic to its site. Amazon reported that its US site has 150 million unique visitors alone. What small business can hope to compete with that kind of website traffic? Merchants, when thinking about which marketplace they should be on, definitely have to take into account the traffic that Amazon brings.

If merchants sign up with Amazon’s 3rd party marketplace, that’s business lost for Shopify. Hence, recent partnerships, with Facebook, Pinterest and Walmart, are aimed to help merchants reach a bigger potential client base without merchants having to stretch operationally further. As a business owner, you don’t want to run your store on three different systems, do you? The executive from Shopify even said as much.

“Few companies in the world match the sheer size and scale of Walmart,” said Satish Kanwar, Shopify’s vice president of product. The deal opens the door for small and medium-sized businesses “to access the 120 million customers who visit Walmart.com every month.”

Source: Financial Post

To new businesses, sudden exposure to 120 million customers a month is absolutely a huge draw. For comparison, Amazon reported that its US website attracted 150 million visitors a month. This partnership, along with others such as those with Facebook and Pinterest, catapults Shopify into a respectable contender in empowering merchants.

Plus, it may not have to worry about losing potential customers to Walmart’s own marketplace. It was reported that Walmart’s marketplace tool wasn’t popular among merchants on the market. Hence, Shopify can pitch to potential customers the prospect of reaching millions of customers while using its well-built tools. I think this move is more about appealing to new merchants and keeping the current customers from jumping ship to Amazon than poaching merchants from Amazon. I doubt that merchants which are well established on Amazon’s platform will be interested in disruption to their business and leaving the most popular marketplace for anything else.

Additionally, I suspect this partnership is focused on the US market alone. Walmart is as American a brand as it can get, and US is its strongest market. Meanwhile, 68% of Shopify’s revenue came from the US market. Stretching resources further to compete with Amazon overseas doesn’t really make sense.

Source: Shopify

What may Walmart gain from this partnership?

In addition to its stores, Walmart also has a marketplace.

When it first launched in 2009, it had fewer than 1 million SKUs available online. Today, the retailer’s total e-commerce presence represents more than 75 million. In 2019, Walmart added 10,000 new sellers to its marketplace, bringing the total last November to over 32,000

Source: Modern Retail

Despite the progress, Walmart is still clearly behind Amazon in the eCommerce space as the Arkansas-based company only had 4.7% market share, compared to Amazon’s 37%. Industry long-time watchers said that Walmart’s marketplace tools weren’t as good as Amazon’s and that merchants didn’t buy in the appeal of Walmart (Source: Modern Retail). Plus, I suspect that Amazon carries a lot more SKUs and merchants, making it a better choice for shoppers than Walmart.

To compete with Amazon, Walmart needs to scale its assortment fast, efficiently and overcome its own inferior internal system.

By leveraging the highly received tools from Shopify, Walmart will allow merchants to be on Walmart’s website without having to use its own internal tools, effectively eliminating any friction that can scare sellers away. On Walmart’s side, it won’t have to spend resources on acquiring thousands of new merchants. Moreover, more merchants and products will make Walmart’s website more appealing and enable it to woo shoppers from Amazon.

In short, with this partnership, Walmart can bring more merchants onboard efficiently in a short amount of time while Shopify can bring its merchants to a potential bigger customer base and hopefully attract more future business. While there is still a long way to go to unseat Amazon, I think this collaboration has a great deal of potential and I am excited to see how it will unfold in the future.

What do you think? Leave a comment to share your thoughts.

Cues on changes in consumer behavior during Covid-19 crisis from Walmart’s latest earnings report

One way to keep a pulse on consumer behavior during the crisis is to listen to companies that play a big part in consumer lives in the US. Take Walmart as an example. The firm is a household name in this country and can be found in most of its counties. This is what it commented on how consumer behaved during the crisis. It shed some light on the changes in preferred categories as the crisis went on

After supporting our associates, our next priority is serving customers. In the U.S. the first quarter started out as expected. And as the pandemic spread, we saw the mix of sales ship heavily towards food and consumables, as we’d previously experienced in China. This was the first stock update that we all saw so vividly. We experienced unprecedented demand in categories like paper goods, surface cleaners and grocery staples. For many of these items we were selling in two or three hours what we normally sell in two or three days. As the quarter progressed, we saw a second phase related to entertaining and educating at home, puzzles and video games took off. Parents became teachers. Adult bicycles started selling out as parents started to join the kids. An overlapping trend then started emerging related to DIY and home related activities. Think games, home office, exercise equipment and alike. It was also clear a lot of people were taking a do-it-yourself approach as they bought items like bandanas and sewing machines to make masks. We can see customers looking to improve their indoor and outdoor living spaces, our home categories in stores and online took off.

Towards the end of the quarter another phase emerged, COVID relief spending as it was heavily influenced by stimulus dollars leading to sales increases in categories such as apparel, televisions, video games, sporting goods and toys. Discretionary categories really popped towards the end of the quarter.

Source: Walmart’s Earnings Call Transcript
Source: Walmart
Source: Walmart

The intensified fear of the virus and the stay-at-home orders also changed shoppers’ behavior

ECommerce sales remained strong throughout the quarter while store traffic was quite variable due to the various stay in place orders and social distancing around the country. February sales were stronger than expected with comp sales of 3.8%. As the health crisis intensified in mid-March, we saw a surge in stock-up trips with March comps increasing about 15%. Store pickup and delivery spiked in March and remained elevated in April with sales growth of nearly 300% at peak.

Store sales slowed during the first half of April due to soft Easter seasonal sale and additional social distancing measures. In mid-April, sales reaccelerated across the business as government stimulus money reached consumers with general merchandise sales particularly strong. April comp sales increased 9.5%.

During the quarter, we saw customers consolidate shopping trips and purchase larger baskets in stores, which drove a ticket increase of about 16% while transactions decreased about 6%. With the shift in purchasing behavior, eCommerce sales contributed approximately 390 basis points to segment comp. Pickup and delivery services continue to run historically high volumes. 

Source: Walmart’s Earnings Call Transcript

Consumer preferences in a particular category such as food also changed due to societal impact of the virus

We have seen some inflation in categories like milk, eggs and dairy later in the quarter, and that seems to have subsided somewhat. And then protein inflation has picked up over the last few weeks, as plants have been inoperable in certain parts of the country. And as those have gotten back to limited operating capacities, we will continue to moderate that.

Source: Walmart’s Earnings Call Transcript

It’s quite interesting that more folks 50 years and older shopped online during the crisis than before

we have seen an increase in not only new buyers, but also repeat rates across the board, both for pickup delivery from the store and delivery out of the FC (Fulfillment Centers).

we have seen higher growth rates, most customers who are 50 years of age or older than what we had seen in previous quarters. Other than that it’s been across the Board, the repeat rates have been higher

Source: Walmart’s Earnings Call Transcript

The value of increased switching costs via a membership

Another interesting point is how memberships play a role in consumer behavior. As we know, everyone can shop at Walmart, but only paid members can at Sam’s Club.

Image

Comparable sales refers to the comparison of sales at the same stores during the same period compared to sales last year. It’s important to exclude fuel due to fluctuating fuel prices.

As you can see, comp in-store transactions at Walmart, which is almost limitlessly accessible, went down because of the stay-in-home order, social distancing and other options including but not limited to Whole Foods, Target. However, comp average ticket at Walmart went up due to consumers stocking up and panic purchase.

On the other hand, at Sam’s Club, where access is more limited due to mandatory paid memberships, both in-store trans and average ticket increased. Average ticket rose by only 0.1%; which I guess is due to the fact that shoppers did more trips to the stores and didn’t buy in bulk as much as Walmart’s clientele. Shoppers shopped more because they already bought the paid memberships which increased what we call in business terms as “switching costs”. What happened this last quarter with Sam’s Club is what executives hope to achieve when launching a rewards program: increased stickiness.

Weekly readings – 29th February 2020

Paris Mayor: It’s Time for a ’15-Minute City’

Checkup for $30, Teeth Cleaning $25: Walmart Gets Into Health Care

Matthew Walker’s “Why We Sleep” Is Riddled with Scientific and Factual Errors. I like Matthew Walker’s book since I learned a lot about sleep from the book. I don’t know which side is correct, but it’s more important to give both sides.

The making of the Mandalorian

FOLDING GLASS: HOW, WHY, AND THE TRUTH OF SAMSUNG’S Z FLIP

Walmart is quietly working on an Amazon Prime competitor called Walmart+

2PM’s analysis of Wayfair

How a Hot $100 Million Home Design Startup Collapsed Overnight

Today I learned – 29th December 2019

I was reading the annual reports of Walmart and a couple of things stood out that I didn’t know before

Walmart’s increasing focus on eCommerce, Technology and Supply Chain in the US

Walmart’s CAPEX in eCommerce, Technology & Supply Chain stood at $3.9, $4.1, $4.9 and $5.2 billion in 2016, 2017, 2018 and 2019 respectively. To put it in perspective, compared to the overal CAPEX in the US, the investment in eCommerce, Technology and Supply Chain made up 46%, 57%, 60% and 68% approximately in 2016, 2017, 2018 and 2019 respectively. The increase highlighted Walmart’s focus on those areas in order to be competitive in a highly competed industry.

Source: Walmart’s annual reports

Member’s Mark revenue

In April 2017, Walmart re-introduced Member’s Mark, which is its private label umbrella brand at Sam’s Club. In 2018 and 2019, Member’s Mark’s revenue exceeded $10 and $12 billion respectively. The private label made up approximately 18% and 23% of Sam’s Club without-fuel revenue in 2018 and 2019 respectively.

Weekly readings – 28th December 2019

The last Weekly readings episode of 2019. I have had fun doing this because this serves mainly as my notes. I hope you got something out of these notes

Nadella is killing it at Microsoft and won the Person of the Year crown from FT

Walmart’s strategy in the fight against Amazon.

The World’s Oldest Forest Has 385-Million-Year-Old Tree Roots. The sheer number is

Coolest things I learned in 2019

Rural America Turning to Grocers, High-Fee ATMs as Banks Leave. If I tell this to my dad, who idolizes America, he probably will say I am crazy!

Apple’s secretive work on a satellite project as a company priority

Why your brain needs exercise

This seems to be a massive issue in the future for Amazon, especially when its 3rd party business has become increasingly important

The Dubai – Saudi Arabia route is surprisingly lucrative for Emirates

What’s Amazon’s market share? 35% or 5%?

‘Amazon’s Choice’ Isn’t the Endorsement It Appears

India needs new infrastructure

I am surprised at how well Hello Fresh has been doing

Americans are retiring in Vietnam and other Southeast Asian countries

Weekly readings – 21st September 2019

How Photos of a Remote School Went Viral, and the Happy Ending That Followed. A beautiful story that makes me appreciate what I have more

The Sun Is Stranger Than Astrophysicists Imagined

A Brief Primer of Asia’s Mid-Autumn Mythology in 3 Folk Tales. Ever heard of Mid Autumn season in Asia? This article offers a great primer on one of the most popular events Asians, especially Southeast Asians, celebrate.

Remarkable story about small Vietnamese community and its transformation

USC Law Commencement Speech. An honest and insightful commencement speech by Charlie Munger

Creativity Is the New Productivity

China’s second largest e-commerce site J.D.com Experienced a 480% leap in iPhone Preorders over Last Year

NPR Shopping Cart Economics: How Prices Changed At A Walmart In 1 Year

Amazon Changed Search Algorithm in Ways That Boost Its Own Products. The change in algorithm goes against the ‘customer-centric’ philosophy that Amazon is known for

The Cost of a Mile

Raising Prices is Hard

What Really Brought Down the Boeing 737 Max? A super long and doozy read on 737 Max, but boy, is it good!

Vietnam Becomes a Victim of Its Own Success in Trade War. As a Vietnamese, I am no stranger to the terrible infrastructure in my country. That’s why I haven’t been bullish on our chance at benefiting from China’s tariff war with the US

Silent Skies: Billions of North American Birds Have Vanished

Netflix: how will the story end?

Stats on retail store size & revenue per square feet

I have been doing some industry research for work, specifically on the retail industry. One trend that CBInsights mentioned in their report was that retail stores were shrinking in size. CBInsights argued that retailers wanted to more conscious of how they made use of their retail space. The competition is so fierce that retailers cannot afford to do everything, be everything and sell everything. They tend to get more nimble in operations and conscious of what they have on display. Nonetheless, CBInsights’ latest year in their data was 2015. So I went through the financial reports by several retailers to find out if retail stores are actually shrinking in size. Before I go through the findings, below are a few important notes:

  • The list of retailers was from this article by WSJ. There are several retailers whose information was not retrieved. The omission was attributed to the way such retailers structured their data, making it time-consuming to retrieve data and complicated to explain. Hence, I decided to omit those retailers
  • Retail is a complex industry. The data is for reference only and may represent to some extent the players or trend in the industry. By no means do I believe that the data represents 100% the retail industry
  • Data from 2015 to 2017 was from the chosen retailers’ annual reports. Data in 2018 was from the latest quarterly reports. Only Walmart already filed their 2018 annual report
  • Apart from Walmart and Sam’s Club, no other companies had their revenue data retrieved. It doesn’t make sense to analyze revenue per square feet with only 3 quarters’ data recorded
  • Data is for the retailers’ US segment only
  • Revenue by Sam’s Club excludes fuel revenue

Number of stores

Among the surveyed companies, only Best Buy, JC Penny and Sam’s Club lowered their store count

Average Store Size

Best Buy, JC Penny and Sam’s Club increased their average store size. The rest decreased theirs, except Dick’s, which keeps their store size more or less the same for the past 4 years

Revenue per square feet

Only Target saw their revenue per square feet decrease in 2017, compared to 2016 and 2015. As the chart can show, 2018 looks to be a good year for Walmart. Both Walmart (the brand) and Sam’s Club increased revenue per square feet, especially the latter.

Summary

The majority of the surveyed companies reduced their total retail space, but managed to make the most of their selling space. This is in line with what CBInsights mentioned (I touched on it above as well).

The data I collected is available here on my Tableau profile