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Why Walmart Inc’s results bring hope to local ASX retailers fighting Amazon.com

Credit: Target

A jump in sales at Walmart Inc brings a ray of light to our embattled brick-and-mortar retailers. It is possible to grow even in the shadow of online shopping giant Amazon.com.

The biggest department store operator in the US posted comparable sales growth of 4.5% in the three months to end July. That’s double what analysts were expecting and is the strongest result in over a decade, according to Bloomberg.

As with our retailers like Myer Holdings Ltd (ASX: MYR), Wesfarmers Ltd’s (ASX: WES) owned Target and Woolworths Group Ltd’s (ASX: WOW) Big W department stores, Walmart has been in a battle against the online behemoth.

Up to now, Walmart seemed to be losing the fight, but its latest results could give hope to shareholders at our underperforming stores.

It has also been largely lost on local investors that Macy’s Inc has been recording better-than-expected growth, even though the stock has been giving back some of its stellar gains this week.

It’s worthwhile looking at the strategies used by these US-listed retailers to see if where our local players can outmanoeuvre the online rivals.

On that front, there’s good news and bad news for Australian retailers. Some of the factors that have driven Walmart’s results aren’t relevant here but there are some strategies used by our US peers that could give management teams here food for thought.

One of the areas where Walmart is “killin’ it” is fresh food. Its grocery business is a key contributor to group sales and Walmart has launched initiatives like curb-side pickup of online orders.

What this means is that our supermarket chains owned by Woolworths and Wesfarmers probably have less to fear from Amazon than their offshore discount grocery retailers.

Walmart is also benefiting from US President Donald Trump’s income tax cuts and growth in its online shopping portal.

This should give hope to local retailers that are also investing heavily into the online channel, particularly since we are also going to get a tax cut from the Turnbull government.

Looking at Macy’s turnaround, which is probably more relevant to our embattled Myer, the US department store has cut promotional activity, expanded its successful “factory outlet” store-within-a-store concept called Backstage and grown its Bluemercury beauty products lineup.

Unfortunately for Myer, Macy’s appears to have more flexibility in closing unprofitable stores. This is perhaps the biggest single drag on Myer as it’s locked into expensive and long-term leases.

The online threat is real and it’s growing. But it’s clear that traditional retailers have ways of fighting back – and winning!

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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