The name Walmart (WMT 1.80%) doesn't usually conjure up images of upscale shopping, but the discount supermarket giant, which happens to be the largest company in the U.S. by sales, has recently switched tracks to appeal to precisely this demographic.
I don't think Walmart is going to pivot away from its discount roots, but it's successfully embracing a broader swath of shoppers, and that could lead to significant growth in the next few years. Here's what's going on and why Walmart is winning.
What's going on with Walmart?
The retail landscape is changing once again as inflation cools and interest rates go down. However, it's not affecting all retailers equally. Walmart is on the winning side, and it reported fantastic results for the 2025 fiscal third quarter (ended Sept. 30). Sales were up 5.5% year over year, and operating income was up 8.2%. The standout in the quarter, though, was e-commerce.
E-commerce sales increased 27% year over year in the third quarter, and U.S. e-commerce was up 22%. Management said that store-fulfilled pickup and delivery, advertising, and marketplace were all growth drivers.
NASDAQ: WMT
Key Data Points
The bulk of Walmart's phenomenal gains in the quarter came from households earning more than $100,000. This is not Walmart's traditional clientele, but it was responsible for 75% of market share gains in the third quarter.
Walmart isn't what you'd think of as a top artificial intelligence (AI) company, but it's using some sophisticated data and machine learning models to know and understand its customers and provide them with the services they're looking for. That's appealing to the higher-income customer. It completely eliminated regular checkout at its Sam's Club warehouse locations and now only provides digital checkout, including its scan-and-go technology. Half of sales in China are digital, and it has 350 distribution points there to facilitate high rates of 1-hour delivery.
CEO Doug McMillon said, "We're learning and applying generative AI, AI, and machine learning to solve the practical opportunities right in front of us."
Walmart was a bit late to e-commerce, and management said that as it builds out the system, it's embedding features that attract higher earners. Some of it's related to broader product selection, which is more easily available on e-commerce, and it has more opportunities in categories like fashion. It's also related to improved e-commerce functionality, with features like 1-hour delivery that higher earners are willing to pay a premium for.
Attracting new customers
Walmart is already the largest retailer in the world. Companies as big as Walmart generally slow down, but there are ways to generate higher growth. One way Walmart is making that happen is through e-commerce, but outside of that, it's also going after new demographics: young and upscale.
In April, it launched a new brand aimed at this population called Better Goods. Although management didn't reference this brand in the third-quarter report or on the call, it's geared toward the higher-earning population that drove growth in the quarter.
"We didn't always show up for customers that were looking for this range," The Wall Street Journal quoted head of grocery for Walmart U.S. John Laney as saying.
It offers healthier foods with specific dietary types like plant-based or gluten-free. The company has been looking for ways to bring more shoppers in beyond looking for cheap basics. Early results, meaning third-quarter performance, look strong.
What about its competitors?
It's worthwhile to note how Walmart's competitors are managing through a similar period. Walmart's most direct competitor is probably Target, which offers similar merchandise at discount prices. However, whereas Target has previously attracted a more upscale clientele, it's been under a lot of pressure lately.
In a different vein, Kroger, the largest non-discount supermarket chain in the country, has been having trouble getting regulatory approval for its planned merger with Albertson's. It's precisely this kind of move from Walmart that Kroger is trying to compete against by teaming up with Albertson's. Walmart, with its vast network of 4,800 stores and dominant position, enjoys an edge over any other supermarket and has more liberty with opening new stores without concerns of a monopoly. It can also demand better prices from suppliers.
Is this the new Walmart?
Successful companies generally don't stagnate in terms of branding and direction. Walmart is evolving, and that's earning it new growth drivers.
This is a welcome development for Walmart shareholders, and investors can expect more of it to come as the company improves digital channels with new brands, categories, and features, as well as launches new products to higher-income shoppers.
