How Walmart Is Leaning Into the Future of Retail

Walmart Inc. has become a kind of vessel for retail’s dreams and fears. 

As the industry’s largest player by far, it is a cup big enough to hold it all — concerns about the economy, worries over consumer confidence, hopes for foot traffic and more. 

But the most important message Walmart holds for the rest of retail is about the power of reinvention and the ability to use size with a little savvy.  

Like Amazon, which used its perch in e-commerce to build a powerhouse cloud computing business, Walmart has taken advantage of its mammoth retail base to grow with e-commerce, add on an advertising business and collect more dollars from membership programs.

The retailer is transforming the business and how it’s perceived by investors, who despite a recent drop have traded shares of the company up more than 63 percent over the past year, valuing it at more than $780 billion.

“We’re mixing ourselves up, while simultaneously investing in lower prices and associate wages,” said Doug McMillon, president and chief executive officer, on the company’s fourth-quarter conference call with analysts. 

“We’re strengthening our ability to serve people how they want to be served in the moment,” McMillon said. “That’s what’s driving our growth. Our prices are low, and we’re becoming more convenient. Customers are shopping with us more often and buying more items, including in general merchandise categories, which were up low-single digits in Walmart U.S. and Sam’s U.S. for the quarter.”

But that’s not a free pass in the day-to-day scrum on Wall Street. 

When Walmart turned in its final 2024 numbers last week, investors zeroed on its outlook and traded away more than $50 billion of the company’s market value. The company projected a 3 to 4 percent sales increase this year, where analysts had a stronger 5 percent bump-up penciled in. 

But outside the stock market, that step back is largely beside the point given the company’s trajectory.

Walmart’s revenues grew by 5.6 percent in constant currencies last year, adding some $36 billion to the top line while adjusted operating income increased by 8.9 percent to $29.5 billion. (That puts the discounter’s annual operating income on par with the combined sales of Macy’s Inc. and Levi Strauss & Co. for the past four quarters).

Walmart’s operating income result was well ahead of the 4 to 6 percent growth the company guided to. And operating income for this year has been set initially for a 5 to 7 percent rise, factoring out the impact of the leap year and the Vizio television acquisition that’s expected to boost the company’s advertising business.  

Morgan Stanley analyst Simeon Gutman said that counts as Walmart’s “strongest initial outlook in over 15 years” and that the company’s “flywheel maintains momentum, narrowing e-commerce losses through scale and accruing the margin benefits of membership and advertising income.” 

Over the last year: 

That’s the kind of development that requires money — and Walmart’s spending it. 

Capital expenditures totaled 3.5 percent of sales last year, or $23.8 billion, as the company poured more money into new stores and remodels and a lot of work on last-mile delivery for digital orders. The company is now able to reach 93 percent of U.S. households with same-day delivery, with a third of customers choosing to pay more to get a delivery in less than three hours. 

A spot check in fashion retail shows that Walmart, while spending less as a percentage of sales than Lululemon Athletica Inc. and Levi Strauss & Co., is outspending many other companies as it seeks to push its advantage. And given its mammoth size, even as it spends less in percentage terms, it actually is spending a lot more in dollar terms.

And Walmart again expects to devote 3 to 3.5 percent of sales to capital expenditures this year. 

The company has been paying up to change across the board. In addition to the growth of the marketplace, apparel departments have gotten a fresh look in stores while private brands have been revamped to be more cohesive and appealing.

And the company is continuing to grow with new technology.

McMillon tends to sprinkle his calls with analysts with a few high tech tidbits.

Last week, it was about the company’s new AI agent “Wally” that the CEO said is “learning to help us get to the root cause of issues related to things like out of stocks or overstocks with more accuracy and speed.” The tech team is also using new coding tools “that are helping streamline deployments and deliver code faster with fewer bugs” while saving 4 million developer hours last year.

“As we become more productive and reduce the amount of time we work on routine tasks that gives us time to develop tools that help us grow the business and move faster,” he said. “I love how we’re changing how we think and work without changing who we are. I can see us getting faster.”

And if Walmart is getting faster, everyone else is going to have to do the same — even if they can’t afford the billions in capex.

The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000. It appears every other Thursday.