Wal Mart (NYSE: WMT), a global retail giant, recently ushered in a “great change” in its share price.
On May 17 (closing on Tuesday, US Eastern time), Wal Mart’s share price plunged by more than 11%, the largest one-day decline in 35 years, and its market value evaporated by more than 300 billion yuan overnight.
Then, it fell by nearly 7% on Wednesday, and the share price hit the lowest level since July 2020; Fell nearly 3% on Thursday
The share price “Thunderstorm” is related to the first quarter financial report of 2022 recently released by Wal Mart.
According to the financial report, the total revenue of the enterprise increased by 141.2% year-on-year in the first quarter of 2022; However, the net profit was US $2.05 billion, a year-on-year decrease of 24.8%.
On the conference call, Biret Biggs, Wal Mart’s chief financial officer, said that Wal Mart was faced with challenges due to supply chain interruption, increased costs and sustained high inflation in the first quarter.
What happened to Wal Mart, which has been the top of the world’s top 500 for eight years? What about Wal Mart China, which Chinese consumers pay more attention to?
part I: the basic disk is greatly impacted
From the perspective of Wal Mart’s revenue structure, the business is mainly divided into three sectors: Wal Mart America (mainly including Wal Mart stores and e-commerce business in the United States), Wal Mart International (mainly including supermarkets, hypermarkets, e-commerce and other businesses in countries and regions outside the United States) and Sam’s Club (mainly including Sam’s club stores in the United States and Puerto Rico).
specifically:
First of all, Wal Mart America is undoubtedly Wal Mart’s “base camp”. In the first quarter of 2022, Wal Mart’s U.S. sales reached 96.904 billion US dollars, a year-on-year increase of 4%; The operating profit was US $4.462 billion, a year-on-year decrease of 18.2%. Sales accounted for 69% of the total sales of the enterprise, and operating profits accounted for 84% of the total profits.
Followed by Wal Mart international. The sales volume of this business in the first quarter of 2022 was US $23.763 billion, a year-on-year decrease of 13%; The operating profit was 772 million US dollars, a year-on-year decrease of 35.3%; Sales and operating profits have declined significantly. The results showed that the decline was mainly due to Wal Mart’s sale of businesses in Argentina, the UK and other countries.
Finally, Sam’s club. The sales volume of this business in the first quarter of 2022 was US $19.662 billion, with a year-on-year increase of 17.5%; The operating profit was US $460 million, down 20% year-on-year.
Overall, in the latest quarter, Wal Mart USA and Sam’s club store both increased revenue without increasing profit. Wal Mart’s international sales were greatly impacted, and both revenue and profit fell p align = “center” source: Enterprise Financial Report
For the sharp decline in operating profit, Wal Mart mentioned in the financial report that it was mainly affected by two core businesses (Wal Mart America and Sam’s club store).
Among them, the increase in sales is mainly due to transaction growth and inflation; The decrease in operating profit was mainly due to the increase in supply chain costs, including fuel and performance, and the higher than expected price reduction of commodities.
In the earnings call, Wal Mart added that the factors affecting profits also include the increase in inventory caused by inflation and the increase in wage expenditure. At the end of last year, Wal Mart hired many new employees to make up for the labor gap caused by covid-19 infection. However, in the first half of the first quarter of this year, many employees have recovered faster than the company expected, resulting in a surplus of employees for several weeks.
However, there is also good news in the quarterly results. According to the financial report, the member income of Sam’s Club increased by 10.5% year-on-year.
The increase of member income shows that new users of Sam’s club are increasing, and the repurchase rate of old users will not be too bad.
Part II:
hypermarkets are cold in China
In Wal Mart’s financial report, China’s Wal Mart hypermarkets are reflected in the “Wal Mart international” business.
The financial report shows that due to the covid-19 epidemic and limited logistics delivery, the sales growth in the Chinese market is “lower than expected”.
Specifically, in the first quarter of 2022, Wal Mart’s sales growth in the Chinese market was the slowest in the existing market of “Wal Mart international”, and the growth rate of same store transactions was only 0.2%; This is well below the 6.2% of “Mexico and Central American countries” and 10.6% of CanadaP align = “center” source: Enterprise Financial Report
In fact, the overall decline of Wal Mart stores in China has been obvious in recent years.
Recall the “glory” of Wal Mart hypermarkets: in 1996, Wal Mart entered central China and opened its first Wal Mart shopping mall in Luohu District, Shenzhen. At that time, this novel commodity display, various promotion means and one-stop shopping experience attracted enthusiastic support from consumers.
Since then, Wal Mart has been enclosure in China. By 2014, Wal Mart has opened more than 400 stores in more than 100 cities in China. It is a real supermarket giant in China.
But it didn’t last long. With the intensification of competition among Chinese local enterprises and the impact of the tide of e-commerce, Wal Mart began to feel difficult in the Chinese market.
In recent years, relevant news about “Wal Mart closing” has also frequently appeared in news topics.
Statistics show that from 2016 to 2020, Wal Mart closed about 80 stores in China; By September 2021, Wal Mart has reduced the number of stores to 378, which also makes Wal Mart rank fourth in the number of stores in large supermarkets in China
Of course, Wal Mart is also seeking “self-help”. In order not to fall behind, Wal Mart has been trying to move online in recent years, such as wholly acquiring No. 1 store and taking shares in JD for in-depth cooperation.
Wal Mart has its own wechat app portal; However, the Internet giants are threatening with traffic and capital, which makes it difficult for Wal Mart to dominate online.
In addition, as far as the management of Wal Mart’s central China Department is concerned, senior executives also change frequently
According to public data, Wal Mart has replaced a president of China every two years on average since 2012, and every personnel change and loss will inevitably change and affect the original business strategy and Wal Mart’s development in China.
Wal Mart has been in China for more than 20 years. It is undeniable that Wal Mart hypermarkets have indeed been cold in China and began to show their own ceiling.
Part III:
choose “bet” Sam’s Club
Sam’s club store is different from the hypermarkets that are constantly “closed”. Wal Mart has high-profile said that it will continue to select locations and expand stores in the central area of China’s first and second tier cities. Expanding Sam’s club store will also become an important strategy for Wal Mart in China.
The so-called Sam’s club is the high-end membership store under Wal Mart. Now it is one of the largest membership stores in the world. It entered the Chinese market in 1996.
The reason why Wal Mart wants to vigorously expand Sam’s club stores in China can be summarized as the following two points.
First of all, in recent years, the proportion of medium and high consumption groups in China’s first and second tier cities has been increasing, and the urbanization rate has continued to improve, laying the foundation for the development of warehousing member stores. Warehousing member stores have ushered in a small outbreak in China.
Secondly, in recent years, under the impact of the epidemic and new Internet models such as fresh e-commerce and community group purchase, the competitiveness of traditional supermarkets in “one-stop shopping” has become insufficient. Facing the development dilemma of traditional retail, Wal Mart chose to expand the relatively new business form of warehouse membership store to meet the diversified needs of consumers through scene shopping experience and high-quality and low-cost goodsP align = “center” source: Wal Mart China official website
According to Wal Mart China data, the pace of opening Sam’s club stores in China has accelerated significantly since 2017.
By the end of 2021, Wal Mart had opened 36 Sam’s club stores in 22 cities in China, with up to 4 million members. In 2022, Wal Mart also plans to increase the number of Sam’s club stores to 40 to 45P align = “center” source: company announcement, red star capital Bureau
Sam’s club has the following features and advantages:
first, the member payment system sam’s club, through the membership model, on the one hand, allows Sam’s club, which is positioned at the middle and high-end, to screen out non core consumer groups, while consolidating user stickiness; On the other hand, enterprises can also understand the needs of consumers through member big data, so as to optimize the commodity structure.
secondly, there are fewer SKUs in warehouse member stores different from tens of thousands of SKUs in traditional hypermarkets, warehouse member stores choose to subtract SKUs and control SKUs at about 40005000.
The advantage of “boutique SKU” is that on the one hand, it can reduce the enterprise procurement process, so as to reduce the logistics, labor and operation costs of the enterprise; On the other hand, it can effectively improve space utilization efficiency and product turnover speed.
However, the obstacles to the future development of Sam’s club are also obvious.
on the one hand, the actual earning capacity of Sam’s club is not good at present financial report shows that from 2017 to 2021, the proportion of membership fee income in revenue of Sam’s club store is basically consistent with its net profit margin.
In addition, a relevant person told the Red Star capital Bureau, “membership fee is a net income for Sam’s club, with almost no cost.”
This actually shows that although the per capita customer unit price of Sam’s club is very high, the gross profit recorded from the sale of goods can only be used to pay the expenses required for the operation of the enterprise. In other words, Sam can’t actually make much money except for the membership fee.
On the other hand, on the one hand, industry competition intensifies now all kinds of capital and traditional supermarkets are eyeing the warehouse membership store and regard it as a new industry outlet.
For example, in October 2020, the first store of HEMA X members settled in Shanghai and announced the realization of single store profitability two months after opening; In May 2021, the world’s first Fudi warehouse member store opened in Beijing; In September 2021, Beijing Hualian’s first warehouse type member store in China landed in Lanzhou; In December 2021, Jiajiayue Group Co.Ltd(603708) China’s first member store opened in Jinan
Therefore, for Wal Mart, although it has the first mover advantage in “betting” Sam’s club in China, the challenge is not small.
summary:
Today, Wal Mart is 60 years old. As a global retail enterprise, Wal Mart is under great pressure due to constant worries and foresight. At least in the Chinese market, Wal Mart has long been “halo” no longer, leaving only its “tired of fighting” back.
