Can Walmart (NYSE:WMT) really make a business out of secondhand clothes? The biggest retail company in the U.S. is betting it can, and that its new venture will provide a boost to WMT stock.
The lucrative secondhand clothing market may help WMT tap into a new customer base. But is it a good idea?
Walmart’s Latest Venture
On Wednesday, Walmart announced a partnership with ThredUp, a clothing and accessories reseller. The deal will provide secondhand clothing and other new brands to sell on Walmart’s website.
The deal is a natural expansion of Walmart’s e-commerce efforts, which the company has been growing for a couple of years now. It’s clear it Walmart wants to be a more legitimate competitor to Amazon (NASDAQ:AMZN).
Last week, WMT announced it would wind down Jet.com, the online retail brand it bought in 2016 for $3.3 billion, to focus on Walmart’s own e-commerce effort.
ThredUp says that concerns about climate change among younger shoppers are expanding the secondhand clothing market. By 2033, secondhand clothing is expected to represent a third of people’s closets, the company said in a 2019 report.
In a blog post, Denise Incandela, head of fashion at Walmart E-Commerce, said ThredUp clothing sold on Walmart’s platform will be “new” or “like new” items. The company will also evaluate pieces for overall quality and selection. “We know that customers, especially millennials, are interested in resale shopping. In fact, according to ThredUp’s upcoming 2020 Annual Resale Report, 70% of consumers have bought or are now willing to buy secondhand,” she said.
If those numbers are accurate, then ThredUp could tie neatly into Walmart’s growing e-commerce business. Walmart saw 37% growth in online sales in the 2019 fiscal year that ended Jan. 31. And that’s just scratching the surface.
A Closer Look at Walmart’s Earnings
Walmart issued its fiscal first-quarter earnings report on May 19, and not surprisingly, e-commerce sales continued to rise. The pandemic forced many brick-and-mortar stores to close and drove customers to shop online.
Walmart says e-commerce sales grew by 74% in the quarter, and same-store sales popped by 10%. Food and consumable items were some of the hottest sellers.
For the quarter, revenue totaled $134.6 billion, beating Wall Street’s estimates of $132.7 billion. Adjusted earnings per share of $1.18 also beat analysts’ consensus prediction of $1.12.
Walmart announced it incurred $900 million in expenses related to the coronavirus pandemic, including the hiring of more than 235,000 new employees. The company also spent big to launch an express delivery service that gets online sales to customers’ homes in less than two hours.
Interestingly, Walmart hinted at an upcoming change in reporting that may affect e-commerce sales numbers in the future. CEO Doug McMillon indicated that e-commerce sales numbers also include grocery sales from curbside pick-up:
“[I]t’s going to end up being that you can do kind of a really quick pickup or delivery from a store location and it will be inclusive of general merchandise which helps us with mix and also improves the customer experience. So our language will probably evolve away from online grocery to just being pickup and delivery, and we’ll talk to you more about what that means in the future.”
In other words, don’t panic if e-commerce numbers take a dip in an upcoming quarter. They’re still there. Walmart will just be changing its accounting.
The Bottom Line on WMT Stock
I continue to like Walmart a lot as a growing e-commerce powerhouse. Walmart is extending those efforts by embracing the secondhand clothing market through ThredUp.
WMT stock continues to be a “strong buy” in my Portfolio Grader, where it enjoys a well-deserved A rating right now. And by offering a 1.8% dividend that’s grown consistently for the last five years, WMT stock gets a B grade on my Dividend Grader, too.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.