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All eyes on Walmart+: Investors want to know if service is creating more loyal customers

All eyes on Walmart+: Investors want to know if service is creating more loyal customers

DIGITAL MARKETING NEWS

All eyes on Walmart+: Investors want to know if service is creating more loyal customers

From here on out, for Walmart, it’s all about customer retention and loyalty.One of the tools it will use to do that is Walmart+, a subscription service that the company launched in September.Walmart is expected to give a progress report on the program when it reports earning on Tuesday. So far, the retailer has not shared subscriber numbers — and that’s unlikely to change this week — but investors and analysts will listen to clues about whether the program is helping the retailer deepen relationships with its shoppers and sell them other kinds of services. Hanging on to market share and driving trips to the store has grown in importance, particularly as consumers get vaccinated and feel free to return to more typical pre-pandemic spending patterns.Walmart+ is part of the retailer’s plans to broaden its business beyond retail and use its reach to make money in other ways, from advertising and financial services to health-care. When customers sign up for the program, the retailer can learn more about their shopping list and preferences — which they can then turn into customer benefits like personalized coupons and new revenue streams like targeted ads.”This is another tool Walmart has at its disposal to drive loyalty and drive online growth,” said Michael Lasser, a retail analyst for UBS. “And importantly, it allows it [the company] to capture more data of its consumers.”Rising competition, falling stockWalmart, the country’s largest grocer, saw sales rise throughout the pandemic, especially online, as Americans reduced shopping trips and focused on food and other pandemic-related necessities, from soap to puzzles. Its same-store sales rose 8.6% and its e-commerce sales soared 79% in the U.S. in the most recent fiscal year, compared with the year prior. Yet despite its size, the discounter faces numerous competitive threats from e-commerce forces like Amazon, low-priced retailers like Dollar General and Aldi and third-party disruptors like Instacart and Fresh Direct.In a recent company memo, obtained by Recode, Walmart was candid about the challenges it faces, from grocery shoppers choosing competitors like Target, Publix and Albertsons to how to retain members who sign up for Walmart+ when their subscriptions lapse.Walmart hit a 52-week high of $153.66 on Dec. 1. Since then, shares have fallen to about $139. Walmart’s fourth-quarter earnings prompted a sell-off as company leaders said the retailer would step up its level of investment to $14 billion and expected sales to moderate for the year. Its shares are down more 3% so far this year, bringing its market value to around $391 billion.Walmart’s sales growth is expected to taper off in the first quarter, as pandemic-related spending dissipates. UBS anticipates the retailer’s same-store sales in the U.S. will rise by 1.5% in the first quarter. That is lower than the 10% growth that Walmart saw in the first quarter a year ago, but higher than the average same-store sales decline of 3.6% that UBS expects for consumable retailers.The company’s earnings per share are expected to be $1.21 and its revenue is expected to be $132.09 billion, according to Refinitiv consensus estimatesWalmart has not shared a specific forecast for the fiscal year, but said it expects net sales to grow in the low single digits and operating income and earnings per share to be flat or up slightly when excluding the impact of divestitures.Walmart+ is Walmart’s answer to Amazon Prime, but with its own perks and a value-oriented spin. The subscription service costs $98 for a year or $12.95 for a month. It includes features like fuel discounts, free next-day and two-day shipping and unlimited deliveries of groceries and other merchandise from Walmart stores.Still in its infancyWalmart+ has grown to an estimated 8 million to 9 million members, according to a recent survey by Consumer Intelligence Research Partners. That’s up from an estimated 7.4 million to 8.2 million members at the start of the year. Members are spending $1,100 per year at Walmart, according to the research.Since the subscription service debuted in the fall, Walmart has continued to tweak it. For instance, the company dropped a $35 online shipping minimum for members in December. That move brought the retailer more in line with Amazon Prime and came during the holiday shopping season.At an investor day in February, Walmart CEO Doug McMillon said Walmart+ will be one of ways that the company drives sales for new and existing customers. First, though, he said the company will focus on “a high quality experience” for customers before it adds more benefits and emphasizes membership growth.”We don’t want to get ahead of ourselves and go sell too many Walmart+ memberships and have a customer experience that is less than our expectation, or their expectation,” he said at the virtual event.For instance, he said, the retailer needs more capacity to keep up with grocery and other store orders delivered to members’ homes — one of the primary perks of the program. The company is adding automated systems to dozens of stores to quickly pick items and fulfill more online orders.”Over time, more and more of our customers will want Walmart+ because it makes life better,” he said. “That relationship will drive repeat business and provide data that enables us to serve them even better and be more personalized. It’s an important piece of our strategy.”Lasser of UBS said the membership program could ultimately bolster other pieces of Walmart’s business — such as allowing it to serve up ads that are more targeted and relevant based on consumers’ buying patterns.Earlier this year, Walmart rebranded its advertising business and announced ambitions to become one of the top 10 advertising platforms in the U.S. over the next few years. Its ads business makes up less than 1% of its annual net sales, according to its 2020 annual report.UBS has rated Walmart shares as buy. Its price target for Walmart is $160, about 13% higher than where shares are trading.While the retailer faces tough year-ago comparisons, Lasser said customers are likely buying more merchandise like TVs, lawn equipment and apparel than household and grocery basics like paper towels and milk. That could mean more profitable sales for Walmart, he said.Moody’s retail analyst Charlie O’Shea said he will listen for the velocity of online sales and whether sales of discretionary items has picked up. He said he doesn’t expect the company to reveal Walmart+ subscriber numbers, but expects to hear about what’s next for the program.He said Walmart+ is still in its infancy compared to Amazon Prime, which launched in 2005. Prime has grown to about 200 million Prime subscribers across the globe, its CEO Jeff Bezos said in April.Even if Walmart did share subscriber numbers, O’Shea said the pandemic has skewed buying patterns and made it “a tough time to assess a membership program.””It’s a laboratory experiment that should work,” he said. “But I’m not sure if it’s going to rise to the level of Amazon.”


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