Walmart will trust automation to improve profits

Jason Robinson on April 12, 2023

Walmart — Increased prices and rising interest rates have altered the economic landscape, causing firms to reevaluate their strategies.

To boost profitability, Walmart, an international retailer, has extended the use of automation throughout its supply chain.

The future of Walmart

Walmart detailed its automation goals during its investor presentation last week.

Automation would allow the organization to better manage inventory, replace shelves, and respond to online inquiries.

The company’s 1.4 million-square-foot factory in Brooksville, Florida, was exhibited to investors.

This is the first automated distribution facility for packaged foods and other shelf-ready household items in the world.

In addition, Walmart plans to deploy the same Symbotic automation in all 42 regional distribution centers.

Walmart will purchase a majority stake in Symbotic, a warehouse technology firm, in 2022.

According to the corporation, by the end of January, more than a third of its facilities will have automated delivery.

A broader plan

Walmart’s automation is part of a bigger plan to increase profits.

According to CEO Doug McMillon, revenue will grow at a 4% annual rate in the next years.

Nonetheless, the proportion is lower than the 8% reported in the three years preceding the pandemic.

It is, however, faster than the 3.1% and 3.6% growth rates observed in the three years preceding the global pandemic.

McMillon also forecasted that over the next five years, profitability will climb faster than sales as Walmart focuses on automation while expanding higher-margin categories such as:

Advertising
Last-mile delivery
Fulfillment services

New ways to shop

According to Doug McMillon, Walmart has given customers more options for online transactions and speedier delivery of items.

The firm now has a bigger product offering, including distinctive brands in a number of industries.

Furthermore, more suppliers are utilizing the company’s third-party marketplace.

“We’re now in a phase that is less about scaling store pickup and delivery, e-commerce assortment, and e-commerce FC [fulfillment center] square footage and more about execution and operating margin improvement,” said McMillion.

Within three years, Walmart plans to automate more than two-thirds of its shops.

Automated facilities will handle more than 55% of fulfillment center tasks, and unit prices may decline by 20%.

A shift in workforce

Walmart is widely regarded as one of the largest employers in the United States, and the company’s 1.6 million employees may be laid off as a result of the automation effort.

Only a few individuals were present on the distribution center floor during the Brooksville facility tour.

The total number of staff, however, has remained unchanged.

According to David Guggina, executive vice president of Walmart’s US supply chain operations, automation is about increasing capacity rather than eliminating jobs.

Guggina claims that because the work is less physically demanding, retention has improved.

While he was unable to provide specific turnover data, he did state that no employees left the factory in the year after its automation.

Meanwhile, Doug McMillon is certain that the retailer’s employees will be retained.

However, he did hint that the structure will be changed.

Walmart, for example, may require fewer employees to transport pallets in warehouses but more employees to complete online purchases.

Layoffs and automation spending

Hundreds of thousands of Walmart employees have been laid off around the country.

According to McMillon, the layoffs were prompted by a rise in internet sales during the early years of the pandemic, with the company seeking to determine their sales pattern outside of the holidays.

Walmart has not disclosed the amount of money it intends to invest in automation initiatives.

According to Chief Financial Officer John David Rainey, the company forecasts capital expenditures to be somewhat higher than in 2022, ranging between 2.5% and 3% of revenues.

Rainey also claimed that 90% of the company’s capital expenditures will go toward high-return industries including e-commerce, retail enhancements, and supply chain.

Changed routines

Some employees’ behaviors have already changed as a result of Walmart’s extended rollout.

Beginning in 1995 at the Brooksville distribution facility, James Molina documented his narrative.

He added that he had previously managed inventory for years but had become tired of carrying massive boxes with a pallet jack or forklift.

Molina, on the other hand, may witness the robots unloading the container and intervene if something goes wrong.

He wouldn’t need a pen and paper because scanners catch everything.

Molina is also able to leave work without feeling tired, allowing him to teach high school soccer.

“I even kick the ball sometimes,” said Molina.

…

Several clothing retailers have shared bleak sales reports, including American Eagle

Nicholas Alexander on September 12, 2022

The economic climate in the United States is challenging for businesses of all stripes, and American Eagle is no exception.

Retailer

Last week, the clothing and accessories retailer joined the list of those reporting dismal results.

Industry players are currently figuring out what people will be looking for when the pandemic is over.

Businesses are also facing reduced demand as inflation puts a strain on their budgets.

Retailers like Macy’s and Nordstrom have slashed prices and slashed profits to pull products off shelves.

“The retail environment’s not pretty,” said Jeffries analyst Corey Tarlowe.

“Inventories have been elevated. There’s billions of dollars of excess apparel inventory that’s floating out around there right now, and that’s a problem.”

American Eagle

On Wednesday, American Eagle announced it would suspend its dividend.

The decision comes after comparable sales fell 6% in the previous quarter compared to the same period last year.

Mike Mathias, the chief operating officer, noted that the macroeconomic environment had led to a “slowdown in demand.”

Meanwhile, chief marketing officer Jen Foyle said American Eagle’s top priority is “adjusting our assortments and rightsizing inventory.”

The need for write-downs to move inventory hurt profits. American Eagle reported earnings of 4 cents per share.

The stock missed analysts’ estimates of 13 cents a share for the quarter ended July 30.

Sales

Speaking at the Goldman Sachs Global Retail Conference last Thursday, Nordstrom CFO Anne Braman said the discount was bigger than expected.

Brahman also said it could take a few minutes to get back to normal. In August, the department store operator reported strong second-quarter sales.

However, the report lowered its economic outlook for the year, citing abundant inventories and weaker demand later in the quarter.

Other retailers

One of the retailer’s rivals, Macy’s, also cut sales and profit forecasts last month.

CFO Adrian Mitchell noted “weakening apparel sales over the quarter as the consumer faces higher costs on essential goods, particularly grocery.”

At the Goldman meeting, Mitchell said the company had made the necessary discounts to eliminate inventory. Retailers such as Gap, Kohl’s, Target, and Walmart have had similar problems with inventory inflation.

Target last month reported a 90% drop in quarterly profit as it used deep discounting to eliminate excess inventory.

Chief financial officer Michael Fiddelke said there was a “softness” for apparel among other individual categories.

Walmart, meanwhile, has been targeting inflation-sensitive consumers.

As a result, they used correspondingly lower prices to pull clothing off store shelves, significantly reducing revenue expectations.

Gap and Kohl’s try to avoid some of the price cuts by implementing specific product packaging and maintaining policies that allow them to hold excess inventory until demand increases.

Analyst Tarlowe said retailers are likely to adjust to demand more quickly next year as supply chains normalize.

Tarlowe said the company is currently working to improve its product.

“All that product was initially ordered for soft and cozy trends is now coming in,” said Tarlowe.

“These retailers have been stuck with it. They’re forced to clear it out. It’s not in the right categories.”

References:

American Eagle joins list of clothing retailers reporting bleak earnings