Walmart Profits To Depend More On Advertising And Other Income

WalmartWMT
is a great merchant. It’s merchandising under John Furner, the CEO of Walmart U.S., has been spectacular. Still, management has indicated that the company seeks more income from outside sources to increase overall profits.

The reason is simple. About 55% of Walmart sales come from its grocery business, and these sales are relatively low margin. In order to generate better profits, Walmart’s effort is to increase the income from advertising, business-to-business activity, and third party sellers on its marketplace. Delivery services from stores and other activities are also under consideration as sources of additional profits.

John David Rainey, CFOCFO
of Walmart, spoke at the recent Raymond James Institutional Investors Conference and indicated that the company will shift more attention to advertising sales, third party income, and business-to-business sales to improve its bottom line. He indicated that more vendors want to spend advertising money with Walmart because it attracts so many shoppers. He said that the advertising revenues typically fall into the 70 to 80 percent range and can change the composition of the company’s profit and loss statement. Insider Intelligence expects Walmart’s ad revenues to grow +42 percent in fiscal 2023.

Rainey indicated that new Walmart’s fees from third party sellers on the marketplace represent another source of increased revenues and higher profits. Walmart has increased the fees it receives from third party sellers by giving them access to Walmart’s fulfillment technology and services they did not have before.

Rainey also pointed to opportunities to partner with business customers who are looking to take advantage of Walmart’s scale. He explained that the chain’s broad network of stores across the U.S. puts a Walmart store within 10 miles of most American households. Rainey claims that Walmart’s strong market coverage has put it in a position to serve as a solution provider for others.

While Walmart is busy trying to monetize advertising and services, it is not alone in its attempts to gain greater profits through these channels. AmazonAMZN
is generating more than half of its commerce revenues from third party marketplace sellers. It is also the largest retail media provider and only behind GoogleGOOG
and Facebook in digital ad sales, according to Retail Intelligence.

POSTSCRIPT: It is a surprise that it took Walmart so long to realize these opportunities exist to generate additional, profitable revenues for the company. Walmart has a strong web-site and the potential of business-to-business deals strikes me as a fundamentally sound move. Mr. Rainey has outlined profitable initiatives that fit well with the Walmart core competencies; these initiatives should drive improvements and help its long-term growth.