Walmart’s “alternative” businesses give megaretailer a boost
Walmart’s “alternative” businesses give megaretailer a boost
Walmart held its quarterly earnings call Thursday morning at 7, to be exact, in Bentonville, Arkansas. And if you were listening in, you would have heard CEO Doug McMillon bragging about the highlights of the retail giant’s business.
Its advertising sales grew 29% last quarter on an annual basis. Its third-party marketplace grew 34%. Its membership income grew by double digits too. Notice, though, that none of those things is actually retail sales.
Walmart is the quintessential big box. Right?
“Not anymore,” said Michael Baker, who heads consumer research at investment firm D.A. Davidson. “They’ve done a pretty good job the last couple of years investing in these alternative businesses.”
Baker said those “alternative” businesses include taking a cut of revenue from third parties who sell through Walmart’s website. Walmart also sells ads on said website. It offers shipping services too.
One reason Walmart can do all that, said Cuihong Li, a business professor at the University of Connecticut, is that it’s really big.
“They have the scale. They have the infrastructure. And they have the expertise,” said Li.
Walmart has thousands of trucks, warehouses and stores — plus a fancy web platform — all initially built for its sprawling retail business.
“When you build up all of these resources that may have excess capacity, if you can sell that on the marketplace, it makes sense,” said Jason Miller, a professor of supply chains at Michigan State.
He said this isn’t an original idea. For instance, Amazon has allowed third-party sellers on its platform for decades. Walmart is following suit.
“Some of these resellers may be selling niche goods that Walmart itself would never want to stock in inventory and sell itself,” said Miller. “And what it does is it gives the consumer a broader product portfolio.”
Baker of D.A. Davidson said there’s a reason Walmart is leaning into its advertising, logistics and marketplace services.
“All fall into this heading of alternative businesses, and all have higher margins. They’re pretty profitable,” he said.
Baker said Walmart can use that profit to keep prices low at its retail stores. That could come in handy, he said, “at times when the core business might be a little bit more, you know, impacted by some external factors.”
Because at the end of the day, retail is still Walmart’s core business. It sells more stuff to Americans than anyone else.
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