Slowly but surely, the world’s largest retailer is waking up to a new retail reality and is building strong foundations for future prosperity.

Slowly but surely, the world’s largest retailer is waking up to a new retail reality. One where headline growth is far less sexy and internationalisation is far less rampant, but the foundations for future prosperity are far more real. The changes are slight (maybe even invisible on the shopfloor itself), but this is evolutionary rather than revolutionary change.

The positives are starting to become more manifest. In the fourth quarter, comps at the US business grew by 1.5%, far and away exceeding expectations. Indeed, this is the fastest rate of growth since the second quarter of 2012. More trend-bucking still was the fact that this was driven by positive increases in both ticket and traffic - in the latter case, this was the first time since the third quarter of 2013.

While dwelling on the positives domestically, Neighborhood Market saw comp growth accelerate from around 5% to 7.7% in the fouth quarter. However, if Neighborhood Market grew so impressively, simple maths dictates that comp growth at the core Supercenters was far less buoyant.

And there were also a few more ‘buts’ in the US figures, notably on the income side. Operating income at Walmart US declined 0.6% in the fourth quarter, resulting in a full-year reduction of 2.1%. Positive sales momentum may have been achieved, but at a price. The decline was attributed primarily to increased healthcare costs from higher enrolment rates and medical cost inflation.

Employee pay rise

Walmart also announced it is making significant revisions to its pay structure. In the face of minimum wage increases across an increasing number of US states, Walmart has pledged to give around 500,000 full-time and part-time associates pay rises in the first half of this year. From April, hourly associates will earn at least $1.75 (£1.13) more than the Federal minimum wage of $9 (£5.83) per hour. That will rise to $10 (£6.48) per hour from 2016.

Pre-release rumours of potential spin-offs of parts of the international business proved ill-founded. The overseas business is, in many respects, the diametric opposite of the US - sales growth is being partially sacrificed as the various markets look to shore up their respective competitive positions.

Sales at Walmart International slipped 3.9% during the fourth quarter in US dollar terms. For the year as a whole, international sales were down 0.3%. Even allowing for currency fluctuations, constant currency growth of 3.6% is a far cry from the high single-digit growth to which we have become accustomed in the past. If Walmart US triumphed on the comp sales side, Walmart International more than delivered on the bottom line - operating income in the fourth quarter surged 66%, taking the full-year increase to a shade under 20%. 

  • Stephen Springham, chief knowledge officer, Planet Retail