by Gerelyn Terzo | July 30, 2014 2:27 pm
Walmart‘s (WMT[1]) U.S. sales performance of late has left something to be desired, with domestic sales having been on the decline for the past year-plus amid what Walmart characterizes as a “cautious” consumer. WMT is not alone, as many of its industry peers have suffered a similar fate, causing investors to go elsewhere for growth.
Change is now in the works at Walmart, where Bill Simon — the company’s U.S. chief executive and president — is stepping down.
Simon will be replaced by Greg Foran, who held the same title for Walmart’s Asia business — a role he assumed only months ago (and after joining Walmart in 2011).
But will it enough to turn around a down year for WMT stock?
While Simon’s legacy will be tied to the increasingly popular smaller-format stores — the expansion of which he is leaving as a well-oiled machine — it also will be tainted by the toll that increased competition, from Target (TGT[2]) to dollar-store retailers, took on Walmart’s performance.
Just look at Walmart’s U.S. comparable-store sales performance, which reflects performance at stores open for 12 months or more, under Simon’s leadership in recent quarters.
Perhaps the most recent quarter was the nail in the coffin for Simon’s tenure at Walmart. The disappointing sales performance has been rivaled only by a drop in customer visits, evidenced by a 1.4% fall in U.S. comps traffic in the first quarter of fiscal 2015.
Foran is entering a market that is foreign to him, having spent his career in the Eastern Hemisphere in Australia and Asia. And Walmart has ambitious expectations for him, as he is moving into a U.S. market with 4,800-plus retail locations overall.
In contrast, Walmart has approximately 900 retail locations across China, Japan, and India. (Walmart plans to expand with another 110 stores in China by 2016.)
Now, in fiscal Q1 2015, China’s comps in particular weren’t anything to write home about, having fallen 2.5%. But during the period, the country faced tightened government regulations and a calendar shift for the Chinese New Year; excluding the latter, Walmart would have report flat comp sales in the region. In fiscal Q4 2014, China comp sales rose 0.4%, and for the full fiscal year 2014, China comp sales increased 0.7%.
But there’s another area where China is shining.
Based on comments from Walmart CEO Doug McMillon[3], Foran brings experience across three different channels to the table: the grocery business, general merchandise and e-commerce.
While Simon’s legacy is tied to the expansion of smaller-format stores, it seems Foran’s approach is three-pronged, and tied these aforementioned channels.
This bodes well for Walmart U.S., as the Asia e-commerce segment (particularly in China) has been growing, evidenced by Yihaodian, Walmart’s grocery and general merchandise e-commerce site in the country, fueling an eightfold increase in mobile transactions last fiscal year. Walmart execs were impressed by this.
“We went to China [and] saw what was happening with Yihaodian” McMillon said in the June Management Update for the Investment Community. “We can take learning from various markets and apply it in other markets. It’s really helpful.”
Indeed, e-commerce has been a bright spot in Asia. “Last year, we grew e-commerce sales in … China at nearly twice the market rate,” McMillon said in the fiscal 2014 annual report. Meanwhile, e-commerce contributed 30 basis points to U.S. comp sales in the fiscal first quarter.
The retailer already has a grand physical presence, and WMT over the past year has grown its online merchandise items in the U.S. more than twofold and in “China greatly.”
Plus, Foran served as president of Walmart’s China business prior to being named as head of the entire Asia division. So he has been closely and recently engaged with a region that is traversing tough government terrain and setting a precedent for e-commerce.
If Walmart’s e-commerce growth in China is any indication, then the U.S. business is in good hands.
Foran has his work cut out for him, but he has seen success in an area that is key to Walmart’s growth going forward: e-commerce.
It’s early to tell whether Foran will be the one to get Walmart’s domestic sales going back in the right direction, as he faces a host of issues separate to those he witnessed in Asia. We might hear more about his strategy for the U.S. when Walmart reports earnings on Aug. 14.
With this change at the U.S. helm, WMT stock has suddenly become a lot more interesting.
As of this writing, Gerelyn Terzo did not hold a position in any of the aforementioned securities
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