Walmart Sends a Warning to Washington
(Bloomberg Opinion) -- Long after the spring spike of pandemic-related pantry loading and panic buying, Walmart Inc. is still benefiting from all the ways Covid-19 has reshaped consumer needs and spending patterns. And yet, even as the mega-retailer unveiled another strong quarterly performance, the underpinnings of its results should serve as a wake-up call to Washington: More government stimulus is urgently needed because it was crucial to keeping consumers off the sidelines this summer.
Walmart reported Tuesday that U.S. comparable sales rose 9.3% from a year earlier in the period ended July 31, far surpassing analysts’ estimates. The growth was powered by its e-commerce division, where sales jumped 97% from a year earlier, with both pickup and delivery options notching all-time high sales volumes. The robust growth also reflected a 27% increase in average ticket, or the total bill, as people consolidated their shopping into fewer trips.
While Walmart continued to see healthy growth in its grocery segment, an important component of its battle with Amazon.com Inc, its strongest sales increases in the U.S. division were in general merchandise, with shoppers shelling out for sporting goods, gardening gear and electronics. Home Depot Inc. also appeared to benefit from consumers sprucing up their houses and yards, reporting a blockbuster 23% increase in comparable sales in the quarter. But at Walmart, even clothing – which generally has been one of the bleakest categories in the retail industry – saw increased sales.
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In earnings materials, Walmart cited the importance of government stimulus multiple times, saying it buoyed results at both its namesake stores and its Sam’s Club chain. The company said that consumers having that money in their wallets helped power sales in high-margin general-merchandise categories, meaning it supported both revenue growth and profitability. The company said “as stimulus funds tapered off, sales started to normalize.” For Walmart, “normalizing” still made for quite healthy business; executives said U.S. comparable sales were up 4% in July.
But the implications here should be crystal clear. With soaring unemployment and the pandemic nowhere near under control, stimulus money was essential to keeping spending from drying up, and thus to keeping the bottom from falling out of the economy.
Walmart deserves credit for managing well through a time of extreme volatility. This is evident in the fact that it managed to deliver an increase in gross margin in the quarter even as it fulfilled far more online orders. Walmart will likely continue to hold up reasonably well as long as this public health crisis remains. Household essentials and groceries will continue to be in high demand while people are stuck at home. The retailer also typically is fairly resilient in a recession, given that it is known for low prices.
But the pattern that it described – of consumers splurging in the early months of the quarter when they had stimulus money in hand, and retreating later – could be devastating for retailers that are more concentrated in discretionary categories such as apparel. Kohl’s Corp., for example, reported Tuesday that revenue fell 23% in the quarter from a year earlier. I shudder to think what its back-to-school and holiday results could look like if unemployment remains elevated and consumers don’t soon get some relief.
Walmart showed its operational and merchandising might in the quarter. But I hope Washington sees the results for what they are: a blaring alarm that it needs to do more to keep consumers afloat.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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