Morningstar | Even as Retail Changes, Walmart Should Be Able to Capitalize on its Brand Strength and Cost Position
With a demonstrated value proposition for its customers and a cost advantage enabled by its vast size, we believe Walmart's standing is strong despite intense competition in retail.We believe Walmart's position as a low-price leader supports its brand strength, one of the factors contributing to our wide moat rating. Despite the competitive environment, which includes threats from mass retailers, hard discounters, and online sellers, we believe Walmart’s significant perishable selection, which provides 60% of sales, is a key differentiator that drives store traffic. Furthermore, we think Walmart's size and scale will allow it to weather price competition. Additionally, investments in in-store initiatives to leverage its physical footprint and improve its fresh food offering should continue to bolster its competitive edge. With economies of scale and a vast distribution network, which contribute to its cost advantage, we think Walmart is positioned for additional volume gains that reinforce its "productivity loop," ultimately driving per-unit costs lower. The company has bumped up spending behind its people and technology and is working to expand its e-commerce platform. On the e-commerce front, Walmart purchased Jet.com in 2016 for $3 billion and 77% of Flipkart in 2018 for $16 billion, and it owns roughly 10% of JD.com. Together, these give insights into the channel and close the gap with Walmart's biggest foe, Amazon ($120 billion in U.S. online sales, in excess of Walmart’s $23 billion as of fiscal 2018, excluding Flipkart). As part of this effort, Walmart is focusing on differentiating its e-commerce platform with "basket economics," where it optimizes shipping inventory and cost by each individual’s location. We believe its 11,700 locations allow it to play offense in winning these online sales by leveraging its locations close to the end consumer, also potentially positioning it to win out in fresh food delivery over time. As a result of these efforts, we expect Walmart can increase online sales over 30% annually (on average, including Flipkart) over the next five years to more than 15% of sales, up from 5% in fiscal 2018.Walmart is engaged in global operations of retail, wholesale and other units, as well as eCommerce, located throughout the U.S., Africa, Argentina, Canada, Central America, Chile, China, India, Japan, Mexico and the U.K. The company's operations are conducted in three reportable segments: Walmart U.S., which is a mass merchandiser of consumer products, operating under the Walmart and Walmart Neighborhood Market brands, as well as walmart.com, jet.com and other eCommerce brands; Walmart International, which includes various formats divided into retail, wholesale and other categories; and Sam's Club, which is a membership-only warehouse club that also operates samsclub.com.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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