Walmart delivered another great quarter which saw two of the main indicators that move the stock get reported in a positive fashion. Those numbers are US comp sales and ecommerce sales. In simple terms, revenue at US stores is up, and Walmart continues to deliver gains in ecommerce showing that Walmart, at a minimum, isn’t getting crushed by Amazon.
It’s worth noting that a few years ago, both of these indicators weren’t positive. Walmart was struggling to get organic growth out of its massive store base in the US, and Walmart couldn’t figure out how to make ecommerce a meaningful part of its business (while Amazon was becoming Amazon).
Walmart’s stock is now back over $100/share. The stock hit its all-time high in January of 2018 where it went over $108/share. The stock touched $87/share back in December, and is now up almost 20% since those lows late last year.
On a week where another retailer (Payless) filed for bankruptcy, the retail landscape has become quite clear. Increasingly there’s a group of retailers winning, and basically everyone else is heading towards bankruptcy.
Amazon of course is the juggernaut, but Walmart and Target have spent years investing in their stores and investing in ways to combat the ecommerce dominance of Amazon. These investments are paying off. Curious what it looks like for a major retailer to do the opposite, and not invest in their stores? Well, look at Sears.
The interesting thing for me here is to ponder whether or not Amazon’s “moat” is as wide and deep as maybe we thought. Is Amazon’s retail operations as unassailable as most assume? Or can Walmart and Target not just survive, but maybe hit Amazon back a bit?
While Amazon’s obvious headstart was just being all-in on ecommerce, the other headstart it had was taking a completely long-term approach to its business. Amazon invested over and over in its business, optimizing for the long-term. It’s paid off handsomely as the company is one of the biggest and most respected businesses in the world. But Walmart and Target have been investing in recent years, too.
A single company dominating a landscape as diverse as retail is probably unlikely, but the combination of Amazon, Target and Walmart will likely continue to put pressure on other retailers. If you own retail stocks outside of these companies, it’s worth giving them a hard look. How are they going to survive continued pressure by the big three?
I have owned Walmart (WMT) stock for many years and really haven’t sold any of it. It’s gone up quite a bit and has a pretty high PE compared its historic average. My problem is that these shares are in a taxable account, and I really don’t want to sell unless there’s some tax harvesting I can do. If the shares were in a tax-sheltered, retirement account, I’d probably sell these shares and put the money into one of my larger index funds. But, I’m also personally attempting to simplify my entire portfolio over the next year and move closer to a three-fund portfolio.
Lastly, the success of Walmart and Target recently does make me wonder about the future success of Amazon a bit. Sure the company will continue to excel, but maybe not to the degree assumed by so many? The AWS business continues to be their main driver of profitability, and of course, Amazon Prime continues to be a juggernaut. But what about grocery? The jury is still out on Amazon’s acquisition of Whole Foods, and Walmart and Target continue to be major players in grocery. Amazon’s an incredible company, but not everything they touch will turn to gold, and sometimes we underestimate the competition. Especially when that competition also happens to be some of the biggest and most dominant companies we’ve seen historically.