Please ensure Javascript is enabled for purposes of website accessibility

Why Walmart Will Continue to Win

By Lawrence Rothman, CFA - Mar 24, 2021 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Walmart has advantages that keep the company on top.

While Walmart (WMT 0.11%) traces its roots back to the 1940s, it opened its first discount store in the early 1960s. The company clearly has done a lot of things to not only survive but thrive in the competitive retail environment that has seen many companies fold during that time. It is now the largest retailer in the world, with 240 million customers around the world visiting its stores and websites every week.

With the industry rapidly changing and formidable online competitors such as Amazon continuing to grab market share, can Walmart remain a dominant force?

Stickies on a keyboard with Key Success written on the top one.

Image source: Getty Images.

Low-cost operator

You would be hard pressed to find a retailer that does a better job than Walmart at containing costs. This includes using its size to control the prices it pays for merchandise. This commitment to keeping the lid on expenses is deeply ingrained into the company, going back to founder Sam Walton's days. Management refers to this as "everyday low costs."

Keeping costs down allows Walmart to pass these savings on to its customers, offering everyday low prices that are hard for competitors to match.

Last year was undoubtedly a difficult period for many people. However, shoppers turned to Walmart, attracted to its broad merchandise offerings and low prices. Its revenue for fiscal year 2021, ended Jan. 31, grew by 7.7% to $564.2 billion, excluding the effects from foreign currency translations. On this basis, Walmart's operating income was 10.6% higher year over year.

Keeping up with the times

Walmart is not merely a retailer with a large physical presence, either. It launched its first e-commerce sites in 2000 and continues to invest in technology. Its investments have improved the omnichannel experience, allowing customers to order their goods and receive them quickly via delivery or pickup in stores.

Last year, the company launched Walmart+, its own subscription service that offers gasoline discounts, a quicker checkout at stores, and free shipping. While it hasn't released subscriber data, initial reports indicate it has gotten off to a promising start.

Management is going to continue investing in technology to "...enhance a seamless, digital customer experience designed to deepen customer relationships and increase share of wallet, enabling the company to diversify the business model by growing related businesses with accretive margins such as marketplace, advertising, financial services, and data monetization," according to its fourth-quarter 2021 earnings release.

Along with other factors, this will depress earnings this year, with management forecasting adjusted operating income staying the same or increasing slightly versus last year. It also expects a low-single-digit percentage increase in sales.

However, these investments will allow Walmart to use its vast resources to continue expanding its reach and staying on top of its game. After all, it takes money to invest in the future and continue growing the business.

Walmart's success revolves around keeping costs down to offer everyday low prices rather than periodic promotions. The company also remains ahead of competitors by continuing to invest in the future, providing customers the ability to order and receive their orders quickly. While this isn't a deep secret, Walmart merely does it better than everyone else. That will keep the company's sales and profit growing over the long haul, rewarding shareholders.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$119.20 (0.11%) $0.13
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$2,151.82 (0.25%) $5.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.