- Walmart became the largest food retailer in the US in 2001 with grocery sales raking in $56 billion.
- The company has seen lower profits this year as a result of inflationary pressures.
- The Bentonville, Arkansas-based retailer is focusing on higher-margin categories to help.
Although Walmart launched its first store in 1962, it wasn’t until 1988 that the Bentonville, Arkansas-based retail giant opened its first fully stocked grocery store in the form of a Walmart Supercenter. But by 2001, Walmart had become the largest food retailer in the US when its sales of groceries – which are the company’s staple today – reached $56 billion.
Today the retailer mixes sales of high-margin items like electronics and furniture with those same groceries. Sales of those high-margin items grew during 2020 and 2021 when customers weren’t spending money on travel and entertainment and stimulus checks still flowed. But times have changed, particularly for the value-conscious customers Walmart caters to.
Walmart’s profits have been down for two straight quarters as typically low-margin groceries sell, but not much else moves.
With high inflation leading to higher prices on essential items like food and gas, many Americans have been less inclined to buy general merchandise. Walmart’s general-merchandise sales declined by 3% this past quarter from the first quarter of the year, the company announced in an August earnings call.
The shift in sales has created a problem for the megaretailer’s bottom line. While net-profit margins for furniture items sold in the US can be as high as 50% to 60%, according to analysts, that total usually hovers around 1% to 3% for grocery items.
In an effort to boost furniture sales and generally raise the profile of its goods beyond grocery, Walmart has introduced new augmented- and virtual-reality technology features to its app.
“I don’t think they want to just be the world’s largest grocer,” Paula Rosenblum, a managing partner at the retail consultancy RSR, said. “Groceries are a pain in the neck — they carry bupkus in margin. There’s way more margin in furniture.”
Walmart has always paid attention to its home-decor and fashion business, Brian Yarbrough, an analyst at Edward Jones, said. He told Insider a renewed push in these categories makes sense for the company now “to help offset some of the pressure they’re seeing with grocery.”
“At the end of the day,” focusing on furniture and apparel “helps the profit-margin profile for the whole company because those are higher-margin categories,” he said.
Will technology help Walmart boost furniture and apparel sales?
Brock McKeel, Walmart’s senior vice president for site experience, told Insider in July that the company’s furniture segment has been a “friction point” in terms of sales. “We know we can make it better for our customers,” he said. He did not specify how much Walmart earned in revenue or profits from furniture sales in 2021.
To help improve the experience for customers, Walmart rolled out an augmented-reality feature on the Walmart app in June that allows users to visualize what pieces of furniture the company sells would look like in their space. Furniture retailers like Wayfair and IKEA have had a similar feature on their apps for years.
Judy George, a retail consultant who founded her own furniture store, Domain Home, before selling the business, told Insider that augmented reality is a “brilliant strategy” for Walmart, as it’s “simplified” the furniture-selection process and are giving customers the quality service it has previously lacked with furniture.
“But they need a good strong marketing plan around their furniture products,” George said. “If they don’t deliver on that, they can forget about the potential success.”
Walmart also unveiled a “Be Your Own Model” feature on its app this month, allowing users to try on more than 270,000 apparel items on their own bodies. Retailers like Macy’s and Adidas had previously launched this virtual feature on their apps.
With other companies utilizing augmented- and virtual-reality features, Yarbrough said Walmart lacks the “first-mover advantage” with these initiatives, but they do put the retailer “on par with a lot of other players.”
“Maybe they were losing some customers to other retailers offering these services, but overall, I’m not sure it’s a big game changer at the end of the day.”
Rosenblum is more bullish on the moves.
“They’ve demonstrated that when they put their mind to something, they can really win,” she said. “I mean, somehow they became the country’s largest grocer in about a decade.”
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