Walmart (WMT), the largest US retailer and private employer, has once again confirmed its status as a grocery powerhouse. But will automation pay off for the retail giant?
Walmart issued its latest quarter earnings report on Thursday. Its strong food business brought sales gains, and its success is also due to its impressive delivery infrastructure. But competition is all around in the grocery sector, and it’s here to stay.
The reported profits beat expectations, and the company raised its earnings guidance for the year. But sales missed analysts’ forecasts, and a slight decline in operating income of 5.4% resulted in $4.72 billion, dropping from $4.99 billion in the same period last year. But more on that later. Walmart’s total revenue grew 2.5% to $127.99 billion versus $124.89 billion a year earlier.
Due to a strong groceries segment, e-sales surged 41%. Grocery sales account for as much as 56% of Walmart’s total revenue, making it the United States’ largest grocer. Shares were up 1% after the news, with an overall 30% increase throughout the year.
Walmart automation comes as no great surprise
The company expects to add self-driving robots that scrub floors to 1,860 of its more than 4,700 stores by February. In addition to the cleaning force, Walmart will also add shelf-inventory-scanning robots at 350 stores along with bots at 1,700 stores to automatically scan boxes upon delivery and sort them onto conveyor belts.
This development was to be expected, considering the complex network the giant operates. Besides the impressive physical size of 178,000-square-foot supercenters, there are so many online shoppers. This strategic move should help the company control costs while enhancing productivity with 1 million hourly workers in its stores. So, by taking the “repetitive and predictive” tasks away, the sales force will have more time to devote to their service (read: selling) roles.
Competition in the grocery sector
Both Walmart and its competitor Target (TGT) are testing robots and automation at their warehouses. Target has 1,850 stores in the US and 360,000 workers, but it’s avoiding a robot-worker strategy.
The company added self-checkouts and automatic cash counting machines, but it emphasized that it won’t employ the robots that Walmart uses. With Target relying more on a “human touch matters” strategy, this drift will surely have an impact on how these giants shape the future of retail.
New markets for Walmart
Walmart had acquired a number of digitally native fashion brands in recent years, and the shift in attention to these non-food items is attracting new customers—but slowly. A lot of non-customers still view Walmart as a low-price player. And some are loyal Prime members with the e-commerce giant Amazon (AMZN). Amazon introduced “Amazon Fresh” in October to provide its Prime members with free grocery delivery. Previously, customers had to pay $14.99 per month for this separate feature.
And competing with Amazon’s fast shipping is painful, especially when you want to maintain your low price range. Just recently, Walmart launched a “Delivery Unlimited” membership. Customers pay $98 annually or $12.95 monthly for unlimited delivers, along with an “in-home delivery” option costing $19.95 a month.
But there are also many deep discounters out there. And let’s not forget the ongoing tariffs, whose costs Walmart will also have to absorb somehow.
Will automation hurt jobs at Walmart?
Automation has always been a polarizing issue. It makes many lower-skilled jobs vulnerable. Walmart is on the side that suggests automation is changing the nature of retail. Whereas Target is making an effort to protect its workers from technological advances.
But the harsh reality is that up to 7.5 million jobs are at risk of replacement because of automation in the near future, according to a 2017 study by Cornerstone Capital Group. So the workplace is bound to look different—and not just in retail but throughout the whole economy.
But as for Walmart, the company needs to improve its position in non-food items, especially online, to drive more higher-margin general merchandise via e-commerce and improve its operating numbers. However, the fact is that Walmart has a strong position as a company. It has, many times, defined frontiers for its competitors.
And more importantly, Walmart has more room to grow—especially since analysts expect online ordering to explode. More and more customers are becoming comfortable with this service.
This article is contributed by IAMNewswire.com. It was written by an independently verified journalist and is not a press release. It should not be construed as investment advice.
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