Walmart's ad sales grow 30%, amid shifting consumer habits

Walmart, America's largest retailer, reported a strong Q3 as its value mix brought in newer, more affluent audiences seeking lower prices, alongside an ad business that grew its revenue by 30%. 

Why it matters

A bellwether of the US economy on the one hand, and a leader in a modern, flywheel approach to doing business on the other, Walmart’s fundamentals appear strong amid inflation. These have contributed to advertising revenue growth which has outpaced the revenue growth of the overall organisation.

New shopping habits

“Regardless of income levels, families are more price-conscious now,” explained Doug McMillon, Walmart's chief executive in an earnings call.

Its customer mix is changing, with three-quarters of new customers earning more than $100,000.

Private label is also increasingly vital, with Walmart-owned brands increasing penetration in food categories by 130 basis points.

According to John Furner, president and CEO of the company's US operation, this increase began in March and was last seen about a decade ago. “I think the last time we would be able to say anything about this is probably 12 to 13 years ago.”

Focus on advertising

“Our flywheel continues to take shape,” McMillon told investors, as the chief exec explained how new omnichannel approaches such as marketplace, fulfilment, and advertising strengthened the core business. The latter posted a consecutive quarter ad sales growth of 30%.

The aim, explained CFO John David Rainey, was to build out parts of the business like advertising and fulfilment, which are not only faster-growing but have a higher margin associated with them.

E-commerce, not known for fat profit margins, has had the effect of strengthening the ad business. “More items and sellers drive GMV and improved customer satisfaction,” said McMillon. “And it also drives success in advertising. They're mutually reinforcing.”

Key numbers

• US sales grew 8.2% over the course of the quarter (up from 6.5% in Q2).
• International revenues grew 7.1% in the quarter (constituting a growth of $1.7bn, but dampened by a currency fluctuation of $1.5bn, as a strong dollar dampened revenues from outside the US).
• E-commerce grew 16% over the quarter (an acceleration from the 12% growth in Q2).
• Global advertising grew 30%, with particularly strong growth in the US-based Walmart Connect, which grew 40%. Flipkart ads in India also showed “strength”, but the company didn’t provide specific numbers.
• Overall, the company made a loss of $1.8bn, largely down to paying $3.1bn to settle opioid lawsuits. But what’s really important on the market is how this compared with expectations, which it managed to outpace.
• Looking ahead: Walmart expects net sales growth to slow to 3% in Q4, but still beating full-year forecasts. It remains cautious on consumption trends next year.

 Sourced from Walmart, Seeking Alpha, WARC