Walmart ad revenue surge helps keep prices low as sales soar

Rising ad sales aren’t just helping Walmart preserve profit margins but also helping the retailer keep a lid on prices amid rising inflation. That in turn helped the giant retailer deliver some of its fastest growth in years last quarter. Subscribe to Ad Age now for the latest industry news and analysis. Comparable store sales rose 9.2% in the U.S. for Walmart in the three months ended Oct. 31. Brick-and-mortar sales outpaced e-commerce—up 8%—for the first time in years as people returned to shop in stores amid a waning pandemic. Investors weren’t impressed, sending the stock down 2.6% on Tuesday, since margins declined as U.S. operating income rose only 5.9%, and Walmart executives forecast continued margin pressure as they vowed to hold the line on price hikes despite inflation. Here are some key marketing takeaways on a Walmart quarter much stronger on the top than the bottom line. Ad sales are increasingly important for Walmart The retailer reported that its Walmart Connect ad business saw a 240% two-year revenue increase. The ad business is also expanding to Canada, Mexico, Chile and India, and it’s becoming important enough that CEO Doug McMillon said on the earnings call that the company is considering reporting the actual revenue numbers rather than growth rates. Chief Financial Officer Brett Biggs said growth of the ad business helped offset cost pressures—though not enough to keep margins from shrinking. Register for Ad Age Next: CMO at AdAge.com/NextCMO. Walmart narrows growth gap with Amazon Walmart’s grocery sales soared almost 10%, hearkening to Walmart’s growth heyday of the 1990s and its 9.2% comp store growth nearly caught up with the slowing pace of e-commerce giant Amazon, whose third-quarter North American retail sales rose only 10.8%. Walmart’s Sam’s Club sibling grew even faster, with comp sales up 13.2% and e-commerce sales up 32%. Walmart is holding the line on prices Though prices increased, they increased more slowly than costs, McMillon said, so higher ad revenue helped mitigate inflation for Walmart shoppers. As a result, Walmart increased price gaps with competitors and market share in grocery, he said. “We’re out there asking suppliers even now, do any of you want to get aggressive and swim upstream and take prices down while prices are going up to gain share.” Forget efficiency, Walmart is buying ahead Some consumers are loading their pantries in expectation of higher prices or product shortages. Walmart is doing the same thing, with its inventory levels last quarter up 11.5%, well ahead of sales and volume, in a break from years of squeezing inventory levels. Part of this owes to planning as far back as last year in expectation of supply chain kinks as the economy emerged from the pandemic, executives said. Part is the belief, apparently borne out by sales, that people are looking to do holiday shopping earlier. So Walmart began stocking Halloween merchandise earlier, selling out of it sooner, and reducing markdowns. The same scenario is unfolding for the year-end holidays. Walmart’s gas price effect is over, at least for now Historically when gas prices surged, Walmart was unduly affected compared to other retailers, because it has more budget-constrained lower-income shoppers than other retailers. Walmart also over-indexes in exurban and suburban markets where people drive more while under-indexing in big cities with better public transportation, amplifying the effect. But that impact wasn’t evident at all last quarter. Walmart U.S. CEO John Furner said Walmart’s positioning as a low-price leader may have offset the gas-price effect last quarter. Likely the growing role of e-commerce and Walmart+ delivery also played a role.

Walmart ad revenue surge helps keep prices low as sales soar

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