Where Walmart, Amazon, Target spend billions in slowing economy

Where Walmart, Amazon, Target spend billions in slowing economy
Written by admin

A Walmart employee loads a robotic warehouse tool with an empty cart to be filled with a customer’s online order at a Walmart micro-fulfillment center in Salem, Mass. where January 8, 2020.

Boston Globe | Boston Globe | Getty Images

When the economy slows down, the classic response for consumer businesses is to cut back: slow hiring, perhaps lay off workers, cut back on marketing, or even slow the pace of technology investment, delaying projects until business picks up again.

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

With S&P Retail Index down nearly 30% this year, with most of the industry increasing capital expenditure investments by double digits, including industry leaders Walmart and Among the top tiers, it only competes with clothing Gap and the home improvement chain Lowe’s is significantly reduced. In electronics retail Best Buyfirst-half profits more than halved – but investment rose 37 percent.

“There’s definitely concern and awareness about costs, but prioritization is happening,” said Thomas O’Connor, vice president of supply chain-consumer retail research at consulting firm Gartner. “Lessons have been learned from the aftermath of the financial crisis,” O’Connor said.

That lesson? Investments made by big spending leaders like Walmart, Amazon and more Home Depot likely to result in customers being acquired from weaker competitors next year consumer cash flow is projected to increase again After a year-long drought in 2022 and spending on goods, the shopping spree actually eased earlier this year.

According to a 2019 report of 1,200 US and European firms, 60 companies classified as “effective growth companies” that Gartner invested in during the crisis after the 2007-2009 recession doubled their earnings between 2009 and 2015, while other companies’ profits and almost did not change.

As the economy struggles to prevent recent inflation from triggering a new recession, companies have taken the data to heart, with a recent Gartner survey of CFOs across industries showing that investments in technology and workforce development are the last costs companies plan to cut. Gartner data shows that budgets for mergers, environmental sustainability plans and even product innovation are taking a back seat.

Today, some retailers are improving how their supply chains work between stores and their suppliers. This is the focus at Home Depot, for example. Others, like Walmart, are trying to improve in-store operations so that shelves are filled faster and fewer sales are lost.

Michael Mandel, an economist at the Progressive Policy Institute, said the trend toward greater investment has been building for a decade, but was catalyzed by the Covid pandemic.

“Even before the pandemic, retailers shifted from infrastructure investments to active investments in hardware, technology and software,” Mandel said. “[Between 2010 and 2020]software investment in the retail sector increased 123% compared to a 16% gain in manufacturing.”

At Walmart, money is pouring into initiatives including VizPick, an augmented reality system that connects to employees’ cellphones. In the first half of the fiscal year that ended in January, the company increased capital spending by 50% to $7.5 billion. CFRA Research analyst Arun Sundaram said its capital spending budget is expected to rise 26 percent to $16.5 billion this year.

“The pandemic has clearly changed the entire retail landscape,” Sundaram said, forcing Walmart and others to become more efficient in their back offices and further embrace online channels and in-store pickup options. “It’s forced Walmart and all other retailers to improve their supply chains. You’re seeing more automation, less manual picking. [in warehouses] and more robots.”

Last week, Amazon announced The latest warehouse robot acquisition is Belgian firm Cloostermans, which offers technology that helps transport and stack heavy pallets and goods, as well as pack products together for delivery.

UBS's Michael Lasser says you can make money at Walmart and Home Depot over the next 12 months.

Home Depot’s campaign to revamp its supply chain has been ongoing for several years, O’Connor said. According to the company’s financial disclosures, its Single Supply Chain efforts are actually hurting profits, but they’re central to both operational efficiency and a key strategic goal—forging deeper relationships with professional contractors who spend more than they do on their own. They have been Home Depot’s bread and butter.

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

The store of the future for aging retail brands

Some large retailers are more focused on updating outdated store branding. Horse Kohl’s, the highlight of this year’s capital spending budget is expanding the firm’s relationship with Sephora, which is adding mini-stores to Kohl’s 400 stores this year. According to Landon Luxemburg, a retail expert at consulting firm Third Bridge, the partnership helps the mid-market retailer add an element of glamor to its underdog image, which led to relatively weak sales growth in the first half of the year. At Kohl’s, this year’s first half investment more than doubled.

About $220 million of the increase in Kohl’s spending was related to investing in beauty inventory to support the 400 Sephora stores opening in 2022, according to Chief Financial Officer Jill Timm. “We will continue this next year. …We look forward to working with Sephora on this solution in all of our stores,” he told analysts on the company’s most recent earnings call in mid-August.

Target is spending $5 billion this year as it adds 30 stores and upgrades another 200, bringing the number of stores renovated since 2017 to more than half of the chain. It is also expanding its own beauty partnership, which it debuted in 2020 Ulta BeautyAdding 200 in-store Ulta centers to 800.

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

The biggest spender is, which has more than $60 billion in capital expenditures in 2021. Although Amazon’s reported capital expenditures include its cloud computing division, it spent about $31 billion on property and equipment in the first half of the year. – a record-breaker in 2021 – even though the investment will make the company’s free cash flow negative.

That’s even enough for Amazon to put on the brakes a bit, with Chief Financial Officer Brian Olsavsky telling investors that Amazon is shifting more of its investment dollars to its cloud computing division. It estimates that about 40% of spending this year will support warehouses and transportation, down from 55% last year. It also plans to spend less on stores worldwide – “to better match customer demand,” Olsavksy told analysts after its latest earnings – a smaller budget item based on excess interest.

At Gap, which has seen its stock fall nearly 50% this year, executives said they should defend their profits this year, arguing they are cutting capital spending and hope they will rebound 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 profit,” Chief Financial Officer Katrina O’Connell told analysts after the latest earnings.

And Lowe’s said it could continue to take market share from smaller rivals, deflecting an analyst’s question about cost-cutting. Lowe’s has been a better stock performer than Home Depot in the past year-to-date and year-to-date periods, though both have seen significant declines in 2022.

“Home improvement is a $900 billion market,” Lowe’s CEO Marvin Ellison said, not mentioning Home Depot. “And I think it’s easy to focus on the two biggest players and determine the overall market share based on that, but it’s a really fragmented market.”

About the author


Leave a Comment