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Walmart Plans to Invest in Logistics amid Slower Sales in China

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Walmart to invest $1.2 billion

Walmart (WMT), in a bid to upgrade its logistics in China, plans to invest $1.2 billion or 8 billion yuan over the next ten years, according to a Reuters report citing the company’s social media account on July 1. Walmart plans to renovate or set up more than ten logistics centers in China.

The comparable sales growth at Walmart’s Chinese operations slowed down in the past six months. Walmart’s management blamed slower economic growth and more competitive activity for the weakness. Tough year-over-year comparisons also impacted Walmart’s sales growth. However, the company’s latest move rekindled hopes of the US and China reaching a trade deal.

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Walmart’s move to upgrade its logistics is significant. The retail environment in China is still very competitive. Walmart faces tough competition online and in the traditional retail platform. Walmart’s Hypermarkets in China experienced softness during the last reported quarter. The margins remained pressured due to promotional events, continued investments to drive online and multichannel sales, and price investments amid competition.

The above graph shows that Walmart’s comparable sales declined during the fourth quarter. Walmart’s comparable sales rose marginally during the first quarter, while the traffic remained low.

Despite the challenges, Sam’s Club continued to do well in China. Walmart is also expanding its one-hour delivery services through Dada-JD Daojia. Walmart is focusing on omnichannel offerings to support its sales growth rate. At the end of the first quarter of fiscal 2020, Walmart expanded its one-hour delivery services to ~300 stores.

Walmart’s stock performance

Walmart’s investments in growth measures continued to drive its comparable sales and stock. So far,  Walmart shares have generated strong returns in 2019. The company is scaling new highs. Read Walmart Stock Is Hitting New Highs: What’s Driving It Higher? to learn more. Walmart stock has grown 18.8% on a year-to-date basis as of July 1. Walmart’s US business is impressive due to sustained momentum in its traffic.

Walmart’s multichannel offerings and pricing investments are supporting its sales in major markets including Canada, Walmex, and China.

Besides Walmart, Costco (COST) and Target (TGT) shares have also generated stellar returns in 2019. Costco and Target stock have risen 29.4% and 31.5%, respectively, in 2019.

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