Wal-Mart is increasing its investment in technology and people with a twofold aim. In a challenging retail market, it aims to improve customer experience with better quality sales associates and store managers by increasing minimum wages. Secondly, the company is investing in technology to build a seamless multi-channel shopping experience for its customers in order to carve out its space in the growing e-commerce market. While the company expects this increase in administrative and capital expense to impact margins in the coming year, future growth will be driven primarily due to these investments. We believe omni-channel retailing will be a key driving factor for Walmart’s future growth.
According to Walmart, an average store-only customer spends approximately $1,400 a year at its stores, compared to $200 among online customers. However, customers who shop through multiple channels spend $ 2,500 a year. Walmart is looking at future sales growth through integration of brick and mortar and online channels. Competitive pressures in the retail industry ensure that low prices are increasingly a less effective way to attract customers. Walmart is now trying to focus on enhanced customer experience through seamless shopping. This includes initiatives such as online order and store pick up, a faster fulfilment network and building new data capabilities to enhance customer experience. Walmart plans to increase its capital expenditure on digital initiatives and ecommerce from $700 million in FY15 to $1.1 billion in FY17, and we believe this expenditure will improve future growth.
Online sales in the U.S. are projected to grow at a CAGR of 9.5% between 2013 and 2018. At the same time, Walmart’s average revenue per square foot for its U.S. stores did not see any significant increase in the past five years. To improve store productivity, the company is moving towards converting its discount stores into supercenters, which offer a full line supermarket and general merchandise. It closed 509 discount stores and opened 954 new supercenters between 2007 and 2014. The integration of brick and mortar stores with its online channel could address the issue of store productivity.
Given the favorable trend towards ecommerce and lower large store productivity, we believe Walmart’s omni-channel strategy will be its key growth driver in the future.