Walmart, Amazon, Target are spending billions in a slowing economy

Walmart, Amazon, Target are spending billions in a slowing economy
Written by admin

A Walmart employee loads an empty basket into a robotic warehouse truck to be filled with a customer’s online order at a Walmart micro-logistics center in Salem, Mass. o John 8, 2020.

Boston Globe | Boston Globe | Getty Pictures

When the economy slows down, the classic reaction for consumer businesses is to cut back: slow hiring, perhaps laying off workers, curbing marketing, or even slowing the pace of technology investment, postponing projects until business picks up again.

But that’s not what America’s troubled retail industry has done this year.

With S&P Retail Index Down nearly 30% this year, most of the industry, including industry leaders, are increasing investment in capital expenditures by double digits Walmart and Among the top tiers, only struggling clothers Openness and home improvement chain Lowe’s is declining significantly. at electronics retailer best buyFirst-half profits fell more than half — but investment increased 37 percent.

“There’s definitely concern and awareness about costs, but it’s becoming a prioritization,” said Thomas O’Connor, vice president of supply chain-consumer retail research at consulting firm Gartner. “A lesson was learned in the aftermath of the financial crisis,” O’Connor said.

That lesson? Investments by big spenders like Walmart, Amazon, and Home Depot likely to result in the acquisition of customers from weaker competitors next year. consumer discretionary cash flow expected to recover After a year of drought in 2022 and spending on goods, stimulus shopping slackened earlier this year.

After the 2007-2009 crisis, 60 companies that Gartner classified as “influential growth companies” that invested during the crisis more than doubled their earnings between 2009 and 2015, while other companies’ profits remained virtually unchanged, according to a 2019 report on 1,200 US and European firms.

A recent survey of financial executives in industries by Gartner shows that investments in technology and workforce development are the last spending companies plan to cut as the economy struggles to prevent recent inflation from causing a new recession. Gartner data shows that budgets lag behind for mergers, environmental sustainability plans, and even product innovation.

Today, some retailers are improving the functioning of supply chains between stores and their suppliers. This is a focal point at Home Depot, for example. Others, like Walmart, are trying to improve in-store operations so that shelves fill faster and fewer sales are lost.

Progressive Policy Institute economist Michael Mandel said the trend towards more investment has been on the rise for a decade, but has been catalyzed by the Covid pandemic.

“Even before the pandemic, retailers were moving from investments in structures to active investments in equipment, technology and software,” Mandel said. Said. “[Between 2010 and 2020]Software investment in retail is up 123% compared to a 16% gain in manufacturing.”

At Walmart, money is flowing into startups that help employees fill shelves faster, including VizPick, an augmented reality system connected to employees’ cell phones. In the first half of its fiscal year, which will end in January, the company increased its capital expenditures by 50% to $7.5 billion. CFRA Research analyst Arun Sundaram said the capital expenditure budget is expected to increase 26 percent this year to $16.5 billion.

“The pandemic has clearly changed the entire retail landscape,” Sundaram said, forcing Walmart and others to be efficient in their back offices and further embrace online channels and in-store pickup options. “It has allowed Walmart and every other retailer to improve their supply chains. You see more automation, less manual picking. [in warehouses] and more robots.”

Last week, Amazon announced Belgian Cloostermans, the latest warehouse robotic purchasing company to offer technology to assist in the handling and stacking of heavy pallets and goods, and to assemble products for delivery.

Michael Lasser of UBS says you can make money from Walmart and Home Depot in the next 12 months.

O’Connor said Home Depot’s campaign to renew its supply chain has been going on for several years. According to the company’s financial statements, the Single Supply Chain effort is actually hurting profits for the time being, but it’s central to both operating efficiency and a key strategic goal – building deeper ties with professional contractors who spend far more than do-it-yourselfers are Home Depot’s bread and butter. and the butter one.

“Serving our professionals is really about removing friction through a wealth of advanced product offerings and capabilities,” executive vice president Hector Padilla told analysts at Home Depot’s second-quarter call. “These new supply chain assets allow us to do this on a different level.”

The shop of the future for aging retail brands

Some large-scale retailers are more focused on renewing an aging store brand. hour kohl’s, the highlight of this year’s capital expenditure budget is the expansion of the firm’s relationship with Sephora, which this year added mini-stores to its 400 Kohl’s stores. Landon Luxembourg, a retail specialist at Third Bridge consulting firm, said the partnership helped the midsize retailer add an element of flair to its otherwise boring image, which contributed to its relatively weak sales growth in the first half of the year. First half investment in Kohl’s has more than doubled this year.

According to chief financial officer Jill Timm, the roughly $220 million increase in Kohl’s spending is related to investment in beauty inventory to support 400 Sephora stores to open in 2022. “We will continue this next year as well. We look forward to working with Sephora on this solution for all of our stores,” he told analysts on the company’s latest earnings call in mid-August.

Target spends $5 billion while adding 30 stores and renovating 200 more this year, bringing the number of stores refurbished since 2017 to more than half of the chain. It’s also expanding its own beauty partnership, which was first introduced in 2020. ultra beautyBy adding 200 in-store Ulta hubs on the way to reaching 800.

Telsey: There is a real bifurcation between low- and high-income consumers

The biggest spender is, which has capitalized over $60 billion in 2021. While Amazon’s reported capital expenditure figures include its cloud computing division, it spent nearly $31 billion on property and equipment in the first half of the year. — from the already record-breaking 2021 — even though the investment turned the company’s free cash flow into negative.

That’s enough to put even Amazon on the brakes a bit, as chief financial officer Brian Olsavsky tells investors that Amazon is shifting more of its investment dollars into the cloud computing segment. This year, he estimates roughly 40% of spending will support warehouses and shipping capacity, which is down from a total of 55% last year. Olsavksy also plans to spend less in stores around the world “to better adapt to customer demand,” Olsavksy told analysts after its latest earnings — already a much smaller budget item on a percentage basis.

In Gap, whose shares have fallen nearly 50% this year, executives defended capital spending cuts, saying they needed to defend their profits this year and hope to recover in 2023.

“We also believe there is an opportunity to more meaningfully slow the pace of our technology and digital platform investments to better optimize our operating profits,” CFO Katrina O’Connell told analysts after her most recent earnings.

Lowe deflected an analyst’s question about spending cuts by saying it could continue to take market share from smaller competitors. While both saw big drops in 2022, Lowe’s has outperformed Home Depot over the past year and year-to-date.

“Home improvement is a $900 billion market,” said Lowe CEO Marvin Ellison, without mentioning Home Depot. “And I think it’s easy to just focus on the two biggest players and determine overall market share gain based on that alone, but it’s a really fragmented market.”

About the author


Leave a Comment