Call 2017 a rebuilding year for Walmart (WMT +3.06%). As is the case when that term is used in sports, the results are not as important as setting up for future success.
It's fair to say the retailer has made major progress in that area. It spent the year revamping its operations to better compete with Amazon (AMZN +0.77%). That process actually started in October 2016 when the retailer spent $3.3 billion buying Jet.com.
When that deal closed Jet.com founder and CEO Marc Lore took over Walmart's digital operations. More importantly, he partnered with CEO Doug McMillon and the rest of top management to implement a true omnichannel strategy.
Walmart is adding online order pickup towers to more stores. Image source: Walmart.
Where does Walmart stand now?
Before Lore came on board, it was fair to say Walmart had a store-first attitude. That makes sense when your management team has spent decades building an incredibly successful brick-and-mortar brand.
What Lore understood, however, is that digital is not an add-on. That meant, if it wanted to compete with Amazon, Walmart would need to be reengineered. Essentially the company had to change two things.
The first was to accept that its geographic proximity to its customers was no longer the edge it once was. Second, the chain had to build a supply chain where stores could efficiently ship individual orders.
Much progress has been made in these areas. While Walmart may not be a pure-digital-first company like Amazon, it now offers a true omnichannel experience. Lore has been testing ways to make ordering online and picking up in store easier while also using stores to facilitate returns of digital orders.
Change the story
When Walmart reported its fourth-quarter numbers shares sunk because digital growth slowed to 23% in the quarter down from 50% in each of the previous three. McMillon addressed concerns over those numbers in remarks released by the company.
The majority of this slowdown was expected as we fully lapped the Jet acquisition as well as creating a healthier long-term foundation for holiday. A smaller portion of the slowdown was unexpected, as we experienced some operational challenges that negatively impacted growth. Overall, we finished the year with eCommerce sales growth of more than 40 percent. So, we feel better about the year than the quarter.
The CEO expects 2018 digital sales to grow by about 40% year over year as well. What's also not evident in just breaking out digital sales is that the chain has built an omnichannel model -- one where overall revenue should be what consumers judge it on.
In that respect, Q4 was strong. Overall revenue grew by $5.3 billion (4.1%) to $136.3 billion. In addition, U.S. comparable-store sales rose by 2.6% and comparable-store traffic was up by 1.6%.
Set up for 2018
While more work remains to be done, Walmart accomplished a lot of the heavy lifting in 2017. It has revamped much of its back-end operation while also training its employees to operate in an omnichannel world.
Changes will continue. The company, for example, has plans to roll-out pickup kiosks for digital orders in hundreds more stores. It also has an offer on the table to buy a significant stake in Flipkart. That would change its operation in India specifically should the deal close, but it would likely have global implications.
Walmart has accomplished something few companies have managed to do. It has fundamentally changed itself without a major stumble. That's impressive and it bodes well for the rest of this year.
