Depending on whom you ask, the U.S. economy is either doing great or sputtering along. On one side of the debate are the all-time highs in two of the major stock market indices, as reported by USA Today on January 22 while on the other, people from across the country are still reeling from the effects of higher prices, uneasiness about the upcoming 2024 election, and the now lack of COVID-related stimulus payments (CBS News). With this as a backdrop, it is surprising that Walmart has decided to expand its number of brick-and-mortar stores by over 150 over the next five years (NY Times), in sharp contrast with CVS, Walgreens and Rite Aid’s decisions to reduce those same footprints. (CNN). But should it be? Walmart’s latest slogan is “Save Money, Live Better,” (8th & Walton), and in looking back at those slogans over sixty years, there has always been an emphasis on lower prices, spending economically, and saving dollars (8th & Walton).
On the plus side of the ledger, quite literally, are the financial facts. Walmart’s stock is near an all-time high, and while it has yet to report fourth-quarter earnings in 2023, which includes the holiday season, the first three quarters of last year were phenomenally successful. As New York Times writer J. Edward Moreno explained, “Consumer spending, which powers the U.S. economy, has been resilient even though shoppers have been squeezed by high inflation and rising interest rates” (NY Times). But it’s the opposite side of this debate which I believe is equally intriguing. Walmart hasn’t opened a new store since 2021 and online sales are up by 24%, now accounting for 15% of total revenue (DigitalCommerce360.com). Therefore, one might surmise that its efforts best be invested in increasing its online presence, as ostensibly the margins would be higher, besting brick and mortar sales. This is consistent with general research out of Australia, where Stockhead reported in September 2023 that, “Around half (or 48%) of accountants surveyed say online businesses have a higher net profit margin than bricks-and-mortar companies.”
Surprisingly, however, these trends are different for Walmart. CNN reported in 2021 that Walmart is taking a page from Amazon’s playbook, almost using online commerce as a de facto loss leader. Journalist Nathaniel Meyersohn explained, “Walmart’s online business isn’t profitable, and it can make more money from third-party sales than from selling its own merchandise online.” Forrester Research also reported that same year, that Walmart’s biggest growth came from its grocery division (Forrester Research).
Only after reading so many different articles did everything finally begin falling into place. The average Walmart store is 182,000 square feet (Walmart Corporate site), which affords it some unique advantages. First, a general perception is that the prices are going to be lower, akin to the branding of Market Basket. Whether that’s the case or not, perception often guides reality and, in the process, provides a natural customer-attracting magnet. Second, and unlike Market Basket stores which primarily only sell groceries, the sheer size of a Walmart Supercenter literally provides for one-stop shopping. In a phrase, everything is in one place. (Note that other brick-and-mortar divisions of the company such as Sam’s Club are not as financially successful). Third, while businesses like to boast about their economies of scale, for Walmart, it’s not even a debate. According to Statista in 2021, Walmart’s revenue was more than double that of Amazon, and more than Costco, Schwarz Group (Germany), and Home Depot combined.