Wal Mart, the world’s largest retailer, suffered a rare share price Waterloo for many years.
After the share price plunged by more than 11% on May 17 (US Eastern time), the largest one-day decline in 35 years, Wal Mart’s share price continued to decline. As of press time, Wal Mart has received four Yin in a row, and the market value has evaporated by more than 70 billion US dollars.
Wal Mart’s share price fell continuously, and the direct fuse lies in its performance. The company’s net profit of US $2.05 billion in the first quarter of this year decreased by about 25% year-on-year. Under the pressure of high inventory and high cost, the market will naturally reduce the company’s profit expectation this year.
The decline in performance is not unique to Wal Mart. Target, America’s second-largest department store retailer, reported a 50% drop in profits. The transportation cost caused by factors such as soaring energy prices alone is $1 billion higher than expected. The first quarter revenue, profit and same store sales growth of rose department store, a US retail discount department store chain giant, were lower than expected, resulting in the same jump and lower opening of more than 24% on May 20, and the final decline of 22.47% was the largest one-day decline since 1986.
Wal Mart stores in China are reflected in Wal Mart’s international business segment. According to the financial report data, the sales growth of this business in the Chinese market was lower than expected due to the covid-19 epidemic and the restrictions on logistics delivery. In the first quarter, Wal Mart’s sales growth in the Chinese market was the slowest in Wal Mart’s existing international market. The emergence of relevant news such as “Wal Mart closing” shows that with the intensification of competition among Chinese local enterprises and the impact of the tide of e-commerce, even the giants of the world’s top 500 are struggling. Wal Mart, which has always been regarded as a rock, is also facing a dilemma similar to “Davis double kill”.
The decline in Wal Mart’s profits is only one aspect of Wal Mart’s financial performance. In fact, the financial data most valued by the market for the valuation of supermarkets and stores belongs to operating cash flow. This is mainly because the operation of offline retail companies is relatively stable, relying on low gross profit to take large-scale revenue, and finally competing for high turnover rate. Large scale ecology, supply chain advantages and cost management are the core support to ensure the turnover rate.
From the first quarterly report, Wal Mart began to be concerned by the market and funds for the new changes in the above three supporting forces. Taking the supply chain as an example, the rising cost under inflation is directly leading to the decline of net profit level. The instability of the supply chain often makes the turnover rate variable, which will have an impact on Wal Mart’s cash flow and net profit level.
From the perspective of similar players in China, although the industrial pain points are different, the retail industry is also facing pain. Statistics show that among the 19 listed companies of supermarkets last year, 11 had a year-on-year decline in revenue and 10 had losses, of which Yonghui Superstores Co.Ltd(601933) suffered a huge loss of 3.944 billion yuan, becoming the king of losses in the industry. Closed companies accelerated their digital transformation in order to break the situation. In addition, the top players, including Renrenle Commercial Group Co.Ltd(002336) , Lianhua supermarket, etc., have successively announced the closure of some stores, which once triggered the market’s ultimate inquiry about where the traditional Shangchao road is.
From the perspective of Wal Mart’s path of seeking a break, choosing to bet on Sam’s club is a path recognized by the market. Different from the closed hypermarkets, Wal Mart has made a high-profile announcement that it will continue to select sites and expand Sam’s club stores in the central area of China’s first and second tier cities. This is also a new model for similar players in China to learn from. Taking Beijing as an example, Metro will launch its fourth member store on June 1 this year.
The reasons behind the change of this mode are related to the consumption upgrading demands of the middle class on the one hand, and the impact of the epidemic and new Internet modes such as fresh e-commerce and community group purchase in recent years on the other hand. After the one-stop shopping competitiveness of traditional supermarkets has declined, whether it can finally solve the problem by meeting the diversified needs of consumers through scene shopping experience and exclusive goods needs to be verified by continuously optimized market data. However, if the supply chain capacity constraints cannot be alleviated, all model innovation will only be seeking fish out of trees. The same is true for Wal Mart and Chinese supermarket players.
